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Preface

Whether you like it or not, the inherent question in everyone is – Whats in it for me? It will
be your folly to ignore this aspect of life. Some are motivated by money, some by a sense of
purpose, some by a learning environment, some need cool environments and some need
challenging environments. Nothing works for all. Something works for all. Everybody has a
dominant need, which keeps changing as they keep growing. Every heart has a yearning. In
that sense, we are all the same and we are all different.

The key is to take others perspective into consideration. Unless you see the world the way
other sees it, you cannot empower the world to see it the way you see it. Leadership is to step
into others shoes and then empowering them to walk in the direction that’s right for them
and that’s good for all. There is no one way for all the people. Leadership has to be customized.

People relate to you not for what you are with them but for what they can be when they are
with you. Deep relationships are not built by making you understand me but in giving you the
confidence that I have understood you. Even with children, they find you interesting only if
you talk to them about what they are interested in. once they develop that interest in your
company, then you can empower them.
The secret is – TO SEE THROUGH OTHERS EYES!!!!
MY LOVE AND RESPECT TO…..
To Rajlaxmi – My Soul. You are around
To my Mummy – You are my source of inspiration, your sacrifices showed me the right path
every time I went wrong.
To my Papa – You taught me the ability to bounce back and stand still, come what may.
To every Student – Glad to have found so many teachers in you, my source of happiness, my
strength.
To my Competitors – You added meaning and worth to my name – Vikas. Thank you for being
so strong and amazing. You bring out the best in me.
To my Entire TEAM at YES – With your work, you set up new benchmarks for me each day,
and give me reasons to stride longer. Thank you for being so perfect in every pursuit.
To YES Academy and to every person around, my well wishers, my critics for helping me rise
in every walk. Its your blessings, which lets me survive and go far.

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YouTube - YES Academy for CS and Law In Karma, I Believe.. Preface

Some latest abbreviations at DALAL STREET -

BSE – Bombay Se Exit

NSE – Nation Se Exit
F&O – Future Over
NIFTY – No Income For This Year
FII – Fraudulent International Investors
HNI – Has No Idea
PMS – Pre Mediated Scam
SIP – Suicide by Investing Patiently
EBITDA – Exit Before It Tumbles Down Again

Sandesh….
Dear Reader,

At the outset, let me first take this opportunity to thank you for spending some of your
valuable time with my words. I feel pleased to present to you, notes on 2nd edition of Capital
Market and Securities Laws (New Syllabus) for CS Executive.

While writing this book, I have taken every possible effort to cover each and every provision as
may be applicable to you and in the most lucid language, so this sums up the entire syllabus.
Howsoever, there is always a scope for improvement. I shall highly appreciate any changes,
corrections, errors, interpretations suggested by you so that the same can be incorporated in
the subsequent editions. You may write to me at [email protected] or get in
touch directly on my cell at +91 8888 078 078.

Many a times, while speaking with students, I come across this question about the opportunities
for a Company Secretary and their scope in the times to come. I shall be wrong; if I simply
quote that life would be simple post completion of the Course. Perhaps, the times ahead poses
a lot of challenges and like I always say the only thing, which shall survive in the long run,

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shall be the Power of Knowledge and the ability to express the same and apply. Readers,
empower yourself so robustly that as and when a challenge arises, it turns its way and says:
let’s catch hold of a weaker one.

It’s said, “Fortune favors the brave”. You give your best shot and leave the rest upon god to
decide. Realize your strengths, work on your weaknesses, grab the best possible opportunity
and overcome your threats. Different people define success differently as it means different to
different. Realize your “Being Successful” factors and start chasing them every morning as
you get up.

“Do everything no matter how unglamorous, to the best of your ability”

Because in the end, what shall matter would be quality of life you spent
and the smiles you lent to the people around you !!!!

With this, I wish you all a happy reading and I hope that you fall in love with this subject. I
wish you all good luck and that you achieve what all you work for. Keep working, keep reading,
keep spreading love, happiness and smile. You shall be a part of my prayers. I promise to serve
you with the best. Someday, we shall once again meet AT THE TOP….

Try to
Reinvent
Yourself

VIKAS VOHRA (Corporate Baba)

Cell: +91 8888 078 078

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YouTube - YES Academy for CS and Law In Karma, I Believe.. Index

INDEX

PART A: CAPITAL MARKET (40 MARKS)

CHAPTER PARTICULARS PAGE NO. SEQUENCE

NO. WHILE STUDYING
1. Basics of Capital Market 1.1 – 1.27
2. Secondary Market in India 2.1 - 2.23
3. Securities Contracts (Regulation) Act, 1956 3.1 – 3.20
4. SEBI 4.1 – 4.30
5. Depositories 5.1 – 5.13
6. Securities Market Intermediaries 6.1 – 6.25
7. IFSCA 7.1 – 7.16

PART B: SECURITIES LAWS (60 MARKS)

CHAPTER PARTICULARS PAGE NO. SEQUENCE

NO. WHILE STUDYING
8. Issue of Capital & Disclosure Requirements 8.1 – 8.33
9. Share based Employee Benefits & Sweat 9.1 – 9.19
Equity
10. Issue & Listing of Non Convertible Securities 10.1 - 10.15
11. Listing Obligations & Disclosure Requirements 11.1 – 11.42
12. Acquisition of Shares & Takeovers 12.1 – 12.24
13. Prohibition of Insider Trading 13.1 – 13.22
14. Prohibition of Fraudulent and Unfair Trade 14.1 – 14.10
Practices Relating to Securities Market
15. Delisting of Equity Shares 15.1 – 15.18
16. Buy Back of Securities 16.1 – 16.15

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17. Mutual Funds 17.1 – 17.28

18. Collective Investment Schemes 18.1 – 18.15

19. Practical Problems in CMSL 19.1 – 19.65

20. Case Laws 20.1 – 20.78

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CHAPTER 1 - BASICS OF CAPITAL MARKET

INTRODUCTION

One of the important constituents of financial system is the financial market instruments,
popularly known as financial products. As on date, a wide range of financial products are
available in the India Financial Market which will be discussed in the forthcoming topics. As
the more variety of financial products are available in the market, it suits the needs of variety
of investors, and as a consequence more and more investors are attracted towards the financial
market.

Financial Markets in India

A Financial market enables efficient trade of securities, and transfer of funds, between lenders
and borrowers and also creates securities for investment. People who have surplus funds invests
in these securities to earn return on their investments.

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Functions of Financial Market

- It facilitates mobilisation and channelization of savings into the most productive uses.
- It helps in determining the price of the securities, on the basis of their demand and supply in
the market.
- It provides liquidity to tradable assets, by facilitating the exchange, as the investors can readily
sell their securities and convert assets into cash.
- It reduces cost by providing valuable information, regarding the securities traded in the financial
market.
- It facilitates exchange of assets without physical delivery.

The financial markets are mainly divided into:

Money market
Money Market is a segment of the financial market where borrowing and lending of short-
term funds take place. The maturity of money market instruments is from one day to one
year. In India, this market is regulated by RBI and SEBI. The nature of transactions in this
market is such that they are large in amount and high in volume. Thus, we can say that the
entire market is dominated by a small number of large players.

Capital Market
Capital market concerned with the industrial security market, government securities markets,
and long- term loan market. It supplies long-term and medium-term funds. It deals with
shares, stocks debentures and bonds. Companies turn to capital markets to raise funds needed
to finance for the infrastructure facilities and corporate activities.

Securities Market
Securities Market is a place where companies can raise funds by issuing securities such as
equity shares, debt securities, derivatives, mutual funds, etc. to the investors (public) and also
is a place where investors can buy or sell various securities (shares, bonds,etc.). Once the
shares (or securities) are issued to the public, the company is required to list the shares (or
securities) on the recognized stock exchanges. Securities Market is a part of the Capital Market.

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The primary function of the securities market is to enable allocation of savings from investors
to those who need it.

Primary Market : The primary market deals with the issue of new instruments by the corporate
sector such as equity shares, preference shares and debt instruments. Central and State
governments, various public sector industrial units (PSUs), statutory and other authorities such
as state electricity boards and port trusts also issue bonds/debt instruments.

Secondary Market : The secondary market or stock exchange is a market for trading and
settlement of securities that have already been issued. The investors holding securities sell
securities through registered brokers/sub-brokers of the stock exchange.

Since 1995, trading in securities is screen-based and Internet-based trading has also made an
appearance in India. It also provides liquidity to the initial buyers in the primary market to re-
offer the securities to any interested buyer at any price, if mutually accepted. An active
secondary market actually promotes the growth of the primary market and capital formation
because investors in the primary market are assured of a continuous market and they can
liquidate their investments.

DIFFERENCE BETWEEN PRIMARY AND SECONDARY MARKET

Basis Primary Market Secondary Market

Meaning The market place for issuing fresh The market place for trading issued
securities securities
Objectives To raise funds Capital Appreciation
Scope Includes issuance of new securities Includes the further trading of
through Initial Public Offer (IPO) securities already offered to the public
Another name New issue market After issue market
Purchasing of Investors can purchase securities Purchase and sale of securities is done
securities directly from the Company by the investors among themselves

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Financing Primary market provides funds to It does not provide funding to

new and old companies for their companies
expansion
and diversification
Parties to Company and Investors Investors among themselves
transactions
Intermediaries Underwriters Brokers
Price Price is fixed Price fluctuates i.e. depends on
demand and supply forces
Utilisation of Fund gained from primary market Fund received from secondary
fund becomes the capital of the market becomes income of investors
company

SEBI – THE CAPITAL MARKETS REGULATOR

The Securities and Exchange Board of India (SEBI) was established in 1988 through an
administrative order, but the Act was passed after about four years and it became a statutory
and really powerful Institution only since 1992.

SEBI has following OBJECTIVES:

Protection to the investors
The primary objective of SEBI is to protect the interest of people in the stock market and
provide a healthy environment for them.

Prevention of malpractices
This was the reason why SEBI was formed. Among the main objectives, preventing malpractices
is one of them.

Fair and proper functioning

SEBI is responsible for the orderly functioning of the capital markets and keeps a close check
over the activities of the financial intermediaries such as brokers, sub-brokers, etc.

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Functions of SEBI
Protective Functions
As the name suggests, these functions are performed by SEBI to protect the interest of
investors and other financial participants, including:
– Checking price rigging
– Prevent insider trading
– Promote fair practices
– Create awareness among investors
– Prohibit fraudulent and unfair trade practices

Regulatory Functions
These functions are basically performed to keep a check on the functioning of the business in
the financial markets, including:
- Designing guidelines and code of conduct for the proper functioning of financial intermediaries
and corporate.
- Regulation of takeover of companies
- Conducting inquiries and audit of exchanges
- Registration of brokers, sub-brokers, merchant bankers etc.
- Levying of fees
- Performing and exercising powers
- Register and regulate credit rating agency

Development Functions
SEBI performs certain development functions also that include but they are not limited to –
- Imparting training to intermediaries
- Promotion of fair trading and reduction of malpractices
- Carry out research work
- Encouraging self-regulating organizations
- Buy-sell mutual funds directly from AMC through a broker

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Powers of SEBI
Quasi-Judicial (enforcement)
With this authority, SEBI can conduct hearings and pass Orders in cases of unethical and
fraudulent trade practices. This ensures transparency, fairness, accountability and reliability in
the capital market.

Quasi-Legislative
Powers under this segment allow SEBI to draft rules and regulations for the protection of the
interests of the investor. One such regulation is SEBI LODR (Listing Obligation and Disclosure
Requirements).

Quasi-Executive
SEBI is authorised to file a case against anyone who violates its rules and regulation. It is
empowered to inspect account books and other documents if it finds traces of any suspicious
activity.

Power to issue informal guidance : SEBI introduced the SEBI (Informal Guidance) Scheme,
2003, which enables any intermediary registered with SEBI to make a request for informal
guidance. The intermediary can be a listed company, a company seeking listing, a mutual fund,
a trustee company, an asset management company or an acquirer/prospective acquirer.

PARTICIPANTS OF CAPITAL MARKET

QUALIFIED INSTITUTIONAL BUYERS

Qualified Institutional Buyers (QIBs) shall mean the following:

(i) a mutual fund, venture capital fund, Alternative Investment Fund and foreign venture capital
investor registered with SEBI;
(ii) a foreign portfolio investor other than Category III foreign portfolio investor, registered with
SEBI;

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(iii) a public financial institution as defined in section 4A of the Companies Act, 1956 [now Section
2(72) of the Companies Act, 2013] ;
(iv) a scheduled commercial bank;
(v) a multilateral and bilateral development financial institution;
(vi) a state industrial development corporation;
(vii) an insurance company registered with the Insurance Regulatory and Development Authority;
(viii) a provident fund with minimum corpus of twenty five crore rupees;
(ix) a pension fund with minimum corpus of twenty five crore rupees;
(x) National Investment Fund set up by the Government of India;
(xi) insurance funds set up and managed by army, navy or air force of the Union of India;
(xii) insurance funds set up and managed by the Department of Posts, India;
(xiii) systemically important non-banking financial companies.

FOREIGN PORTFOLIO INVESTOR

Foreign Portfolio Investor (FPI) means a person who satisfies the eligibility criteria prescribed
under SEBI (Foreign Portfolio Investors) Regulations, 2019 and has been registered under
Chapter II of these regulations, which shall be deemed to be an intermediary in terms of the
provisions of the SEBI Act, 1992.

Categories of FPI
Category I FPIs include:
(i) Government and Government related investors such as central banks, sovereign wealth funds,
international or multilateral organizations or agencies including entities controlled or at least
75% directly or indirectly owned by such Government and Government related investor(s);
(ii) Pension funds and university funds;
(iii) Appropriately regulated entities such as insurance or reinsurance entities, banks, asset
management companies, investment managers, investment advisors, portfolio managers, broker
dealers and swap dealers;
(iv) Entities from the Financial Action Task Force member countries which are –
I. appropriately regulated funds;

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II. unregulated funds whose investment manager is appropriately regulated and registered as a
Category I foreign portfolio investor. However the investment manager undertakes the
responsibility of all the acts of commission or omission of such unregulated fund;
III. university related endowments of such universities that have been in existence for more than
five years;
(v) An entity (A) whose investment manager is from the Financial Action Task Force member
country and such an investment manager is registered as a Category I foreign portfolio investor;
or (B) which is at least seventy-five per cent owned, directly or indirectly by another entity,
eligible under sub-clause (ii), (iii) and (iv) of clause (a) of this regulation and such an
eligible entity is from a Financial Action Task Force member country. However such an
investment manager or eligible entity undertakes the responsibility of all the acts of
commission or omission of the applicants seeking registration under this sub-clause.

Category II FPIs include all the investors not eligible under Category I foreign portfolio investors
such as –
(i) appropriately regulated funds not eligible as Category-I foreign portfolio investor;
(ii) endowments and foundations;
(iii) charitable organisations;
(iv) corporate bodies;
(v) family offices;
(vi) Individuals;
(vii) appropriately regulated entities investing on behalf of their client, as per conditions specified
by the Board from time to time;
(viii) Unregulated funds in the form of limited partnership and trusts;
Explanation: An applicant incorporated or established in an International Financial Services
Centre shall be deemed to be appropriately regulated.

SEBI (Foreign Portfolio Investors) (Amendment) Regulations, 2022 enable SEBI to generate
unique registration numbers of Foreign Portfolio Investors on receiving the basic details of the
applicants seeking FPI registration from either of SEBI registered Depositories.

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ALTERNATIVE INVESTMENT FUND

AIF means any fund established in India in the form of a trust, company, limited liability
partnership or a body corporate which:-
- is a privately pooled investment vehicle that collects funds from investors, whether Indian or
Foreign, for investing it in accordance with a defined investment policy; and
- is not covered under the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment
Schemes) Regulations, 1999 or any other regulations of SEBI, which aims to regulate fund
management activities.

The following are specifically excluded from the purview of AIF Regulations (subject to
conditions in certain cases):
1) Family Trusts;
2) ESOP Trusts;
3) Employee welfare Trusts;
4) Holding Companies;
5) Other Special Purpose Vehicle not established by fund managers, including securitization trusts,
regulated under a specific regulatory framework;
6) Funds managed by registered securitization company or reconstruction company; and
7) Any such pool of funds which is directly regulated by any other Indian regulator.

CATEGORIES OF AIF

SEBI has classified AIF into the following broad categories:

Category I : Funds that invest in start-up or early stage ventures or social ventures or Small
Medium Enterprises (SMEs) or infrastructure or other sectors which the government consider
as socially or economically desirable. For example: VCF, SME Funds, Social Venture Funds (SVF),
Infra Funds.
Category II : Funds that do not fall in Category I and III AIF and those that do not undertake
borrowing for example Private Equity Funds or Debt Funds.

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Category III : Funds that employ diverse or complex trading strategies and may employ leverage
including through investment in listed or unlisted derivatives, for e.g. Hedge Funds.

PRIVATE EQUITY

- Private equity is a type of equity (finance) and one of the asset classes who takes securities
and debt in operating companies that are not publicly traded on a stock exchange.
- Unlike stocks, mutual funds, and bonds, private equity funds usually invest in more illiquid
assets, i.e. companies. By purchasing companies, the firms gain access to those assets and
revenue sources of the company, which can lead to very high returns on investments.
- Private equity consists of investors and funds that make investments directly into private
companies. Capital for private equity is raised from retail and institutional investors, and can
be used to fund new technologies, expand working capital within an owned company, make
acquisitions, or to strengthen a balance sheet.
- The major of private equity consists of institutional investors and accredited investors who can
commit large sums of money for long periods of time.
- Generally, the private equity fund raise money from investors like Angel investors, Institutions
with diversified investment portfolio like - pension funds, insurance companies, banks, funds
of funds etc.

Types of private equity

- Leveraged Buyout (LBO): This refers to a strategy of making equity investments as part of a
transaction in which a company, business unit or business assets is acquired from the current
shareholders typically with the use of financial leverage. The companies involved in these type
of transactions that are typically more mature and generate operating cash flows.

- Venture Capital: It is a broad sub-category of private equity that refers to equity investments
made, typically in less mature companies, for the launch, early development, or expansion of a
business.

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- Growth Capital: This refers to equity investments, mostly minority investments, in the
companies that are looking for capital to expand or restructure operations, enter new markets
or finance a major acquisition without a change of control of the business.

ANGEL FUND

- Angel investments are typically the earliest equity investments made in start-up companies.
- These networks are based on regional, industry in investor or academic affiliation.
- Angel Investors are often former entrepreneurs themselves, and enjoy working with companies
at the earliest stages of business formation.
- As per SEBI (Alternative Investment Fund) Regulations, 2012, angel fund is a sub-category of
venture capital.

HIGH NET WORTH INDIVIDUALS

Though there is no specific definition, generally in the Indian context, individuals with over
Rs. 2 crore investible surplus may be considered to be HNIs while those with investible wealth
in the range of Rs. 25 lac - Rs. 2 crore may be deemed as Emerging HNIs.

If you are applying for an IPO of equity shares in an Indian company, generally, if you apply
for amounts in excess of Rs. 2 lakhs, you fall under the HNI category. On the other hand, if
you apply for amounts under Rs. 2 lakhs, you are considered as a retail investor.

SEBI has laid down certain criteria in SEBI (ICDR) Regulations, 2018, under which an HNI is
entitled to get the shares not less than 15% of the issue, if the issue is in accordance with
regulation 26(1) with SEBI (ICDR) Regulation 2018 or not more than 15% of the issue if the
issue is in accordance with regulation 26(2) of SEBI (ICDR) Regulation 2018.

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VENTURE CAPITAL

- Venture Capital is one of the innovative financing resource for a company in which the promoter
has to give up some level of ownership and control of business in exchange for capital for a
limited period, say, 3-5 years.
- Venture Capital is an equity investment made at an early stage in privately held companies,
having potential to provide a high rate of return on their investments.
- The participants in venture capital firms can be institutional investors like pension funds,
insurance companies, foundations, corporations or individuals but these are high risk investments
which may give high returns or high loss.

PENSION FUNDS

- Pension Fund means a fund established by an employer to facilitate and organize the
investment of employees retirement funds which is contributed by the employer and employees.
- The pension fund provide pensions for employees when they
reach the end of their working years and commence retirement.
- Pension funds are commonly run by some sort of financial intermediary for the company and
its employees like N.P.S. scheme is managed by UTIAMC (Retirement Solutions), although
some larger corporations operate their pension funds in-house.

Pensions broadly divided into two sector:

A-Formal sector Pensions
Formal sector pensions in India can be divided into three categories; viz pensions under an
Act or Statute, Government pensions and voluntary pensions

B-Informal sector Pensions

This scheme will cover unorganized workers who are working or engaged as home based workers,
street vendors, cobblers, rag pickers, rickshaw pullers, agriculture workers, construction workers,
among others.

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Legislations
There are three defining Acts for pensions in India.
1. Pensions under the EPF & MP Act 1952
2. Pensions under the Coal mines PF & MP Act 1948
3. Gratuity under the Payment of Gratuity Act, 1972

ATAL PENSION YOJANA (APY)

Government of India (GoI) is concerned about the old age income security of the working poor
and is focused on encouraging and enabling them to save for their retirement. To address the
longevity risks among the workers in unorganized sector and to encourage the workers in
unorganized sector to voluntarily save for their retirement.

The GoI has therefore announced a new scheme called Atal Pension Yojana (APY)1 in 2015-16
budget. The APY is focused on all citizens in the unorganized sector. The scheme is administered
by the Pension Fund Regulatory and Development Authority (PFRDA) through NPS architecture.
Under the APY, there is guaranteed minimum monthly pension for the subscribers ranging
between Rs. 1000 and Rs. 5000 per month. The benefit of minimum pension would be
guaranteed by the GoI.

GOVERNMENT PENSION

Government pensions in India are referred under the Directive Principles of State Policy and
are therefore not covered under a Statute. The Government amended the regulations to put in
place the new pension system.

The old scheme continues for the existing employees (i.e. those who joined service prior to
January 1, 2004). Pensions for government employees would include employees of the central
as well as the state governments.
(A) Central Government Pensions like Civil servants pensions, Defences, Railways, Posts.

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(B) State Government Pensions, Bank pensions like Reserve Bank of India (RBI), Public Sector
Banks, National Bank for Agriculture and Rural Development (NABARD) and other banks
pensions. Superannuation schemes are also sold in the market. These are typically the
retirement plans sold by Mutual funds and Insurance companies (Life Insurance & Postal Life
Insurance).

KINDS OF CAPITAL MARKET INSTRUMENTS

1. SHARES
According to Companies Act, 2013 defines the term “share”. As per this, share means share
in the share capital of a company; and includes stock, except where a distinction between
stock and share is expressed or implied.
By its nature, a share is not a sum of money but a bundle of rights and liabilities. A share is
a right to participate in the profits of a company, while it is a going concern and declares
dividend; and a right to participate in the assets of the company, when it is wound up.

There are two types of shares : Preference share and Equity share.
i) Preference Share : A preference share is a share which fulfils the following two conditions
 It carries preferential right in respect of payment of dividend; and
 It also carries preferential right in regard to repayment of capital.
In simple terms, preference share capital must have priority both regards to dividend as well
as capital.

Following are the various types of preference shares :

Redeemable and Irredeemable Preference Shares : The Companies Act, 2013 provides that a
company, if so authorized by its articles of association, may issue redeemable preference shares.
However, a company cannot issue preference shares which is redeemable after the expiry of
twenty years from the date of its issue.
It may be noted that on and after the commencement of Companies (Amendment) Act, 1996,
with effect from 1st March, 1997, a company cannot issue irredeemable preference shares.

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Participating and Non-Participating Preference Shares : A participating preference share is

one which is entitled with a right to participate further in the profits after payment of a
certain rate of dividend on equity shares. A non-participating preference share is one which
does not have such right to further participate in the profits of the company.
Preference shares are always non-participating, unless expressly stated to be participating.

Cumulative and Non-Cumulative Preference shares : Cumulative preference shares give the
right to demand the unpaid dividend of any year during the subsequent year(s) when the
profits are available for distribution. But in the case of non-cumulative preference shares, it is
not so. Preference shares are always cumulative, unless expressly stated to be participating.

Convertible Preference Shares : According to Section 55 of the Companies Act, 2013, a

convertible preference share is that preference share, which shall be converted after a specified
period of time.

Fully convertible cumulative preferences share (Equipref) : this instrument is in two parts
i.e. part A and part B. Part A is convertible into equity shares automatically and compulsorily
on the date of allotment without any application by the allotee. Part B is redeemed at par or
converted into equity after the lock-in-period, at the option of the investor, at a price 30%
lower than average market price.

ii) Equity Share : Equity share means share which is not preference share. There are two kinds
of equity shares : Equity shares with equal rights and Equity shares with differential rights.
There is another variant of equity shares called Sweat Equity Share.
Important characteristics of equity shares are given below:
- Equity shares, have voting rights at all general meetings of the company. These votes have the
affect of the controlling the management of the company.
- Equity shares have the right to share the profits of the company in the form of dividend
(cash) and bonus shares.
- However, even equity shareholders cannot demand declaration of dividend by the company
which is left to the discretion of the Board of Directors.

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- When the company is wound up, payment towards the equity share capital will be made to the
respective shareholders only after payment of the claims of all the creditors and the preference
share capital.

EQUITY SHARES WITH DIFFERENTIAL RIGHTS

No company shall issue equity with differential rights as to dividend or voting unless it complies
with the following conditions :
1) It is authorized by its Articles of Association.
2) The issue is authorized by an ordinary resolution. In case of listed companies it shall be passed
through postal ballot.
3) Shares with differential rights shall not exceed seventy four per cent of total voting power
including voting power in respect of equity shares with differential rights issued at any point
of time
4) The Company has not defaulted in filing financial statements and annual returns in the last
3 preceding financial years.
5) The company has not defaulted in payment of declared divided to its shareholders or redemption
or payment of interest on deposits or debentures or any bank loan.
6) The company has not been penalized by any court or tribunal during the last 3 years for any
offence under RBI Act, SEBI Act, SCRA or FEMA.

DEBENTURES

Section 2 (30) of the Companies Act, 2013 defines a debenture as:

“Debenture includes debenture stock, bonds and any other securities of a company, whether
constituting a charge on the company’s assets or not”.

However, this definition is not clear. In simple terms, a debenture may be defined as an
instrument acknowledging a debt by a company to some person or persons.

The usual features of a debenture are as follows:-

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1. A debenture is usually in the form of a certificate (like a share certificate) issued under the
common seal of the company.
2. The certificate is an acknowledgement by the company of indebtedness to a holder.
3. A debenture usually provides for the payment of a specified sum at a specified date. But that
is not essential. A company may issue perpetual or irredeemable debentures with no undertaking
to pay.
4. A debenture usually provides for payment of interest until the principal sum is paid back. But
again, this is not essential. Interest may be made payable subject to contingencies of uncertain
nature.
5. A debenture is, as a rule, one of a series, although a single debenture is not uncommon. There
may be a single debenture issued to one person.

Debenture may be of different kinds as follows:-

Redeemable and Perpetual or Irredeemable Debentures : Debentures are generally
redeemable, that is to say, they are issued on the terms that the company is bound repay to
repay the amount of debentures, either at a fixed date, or upon demand, or after notice, or
under a system of periodical drawings. Redeemable debentures can be re-issued. A debenture
in which no time is fixed for the company to pay back the money, although it may pay back
at any time it chooses, is an irredeemable debenture. The debenture holder cannot demand
payment as long as the company is a going concern and does not make default in making
payment of the interest.

Registered and Bearer Debentures : Registered debentures are made out in the name of a
particular person, whose name appears on the debenture certificate and who is registered by
the company holder in the register of debenture holders. Such debentures are transferable in
the same manner as shares. Bearer debentures, on the other hand, are made out to bearer,
and are negotiable instruments, and so transferable by mere delivery like share warrants.

Secured and Unsecured or Naked Debentures : Where debentures are secured by a mortgage
or a charge on the property of the company, they are called secured debentures. Where they

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are not secured by any mortgage or change on any property of the company, they are said to
be naked or unsecured.

Convertible and Non-Convertible Debentures : Convertible debentures are those in which an

option is given to the debenture holders to exchange a part or whole of their debentures for
shares in the company under certain conditions and limitations imposed regarding the period
during which the option may be exercised. This enables the investor to change his position
financially and begins to make profit. When the full debenture is convertible into equity shares,
they are known as fully convertible debentures. When only a portion of debenture is convertible
into equity shares, they are known as partly convertible debentures. Here, non-convertible
portion is redeemed at the expiry of the stipulated period. Non-convertible debenture do not
carry the option of conversion into equity shares and hence are redeemed on the expiry of the
specified period.

Third Party Convertible Debentures: These are debt instruments with warrant attached which
gives an option to subscribe to the equity shares of company at a price lower than the market
price. These are similar to convertible debenture with warrant option except that these
debentures give an option to the investor to subscribe for shares in another company.

Fully convertible debentures with interest (optional): In this case there is no interest
payment involved for certain period. Then the holder of this instrument can exercise option and
apply for securities without paying additional amount.

Non convertible debentures: These debentures do not carry the option of conversion into
equity shares and are therefore redeemed on the expiry of the specified period or periods.

Partly convertible debentures: These may consist of two kinds namely -convertible and non-
convertible. The convertible portion is to be converted into equity shares at the expiry of
specified period. However, the non convertible portion is redeemed at the expiry of the stipulated
period. If the conversion takes place at or after 18 months, the conversion is optional at the
discretion of the debenture holder.

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BONDS

Bond is a negotiable certificate evidencing indebtedness. It is normally unsecured. A debt

security is generally issued by a company, municipality or government. A Bond investor lends
money to the issuer and in exchange, the issuer promises to repay the loan amount on a
specified maturity date. The issuer usually pays the bond holder periodic interest payments over
the life of the bond.

Characteristics of a Bond
1. Bond has a fixed face value, which is the amount to be returned to the investor upon maturity.
2. Fixed maturity date, which can range from a few days to 20-30 years or even more.
3. All bonds repay the principal amount after the maturity date.
4. Provides regular payment of interest, semi-annually or annually.
5. Interest is calculated as a certain percentage of the face value known as a coupon payment.
6. Generally considered as less risky investment as compared to equity.
7. It helps to diversify and grow investors money.

Bond may be of different kinds as follows:-

Government Bonds
These are the bonds issued either directly by Government of India or by the Public
Sector Units (PSU’s) in India. These bonds are secured as they are backed up with security
from Government. These are generally offered with low rate of interest compared to
other types of bonds.

Corporate Bonds
These are the bonds issued by the private corporate companies. Indian corporates issue secured
or non secured bonds. However care to be taken to consider the credit rating given by
Credit Rating Agencies before investing in these bonds.

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Banks and other financial institutions bonds

These bonds are issued by banks or any financial institution. The financial market is well
regulated and the majority of the bond markets are from this segment.

Tax saving bonds

In India, the tax saving bonds are issued by the Government of India for providing
benefit to investors in the form of tax savings. Along with getting normal interest, the bond
holder would also get tax benefit. In India, all these bonds are listed in National Stock Exchange
and Bombay Stock Exchange in India, hence they can be easily liquidated and sold in
the open market.

FOREIGN CURRENCY CONVERTIBLE BONDS (FCCBS)

Definition of FCCB:
Foreign Currency Convertible Bonds mean bonds issued in accordance with the Government’s
Guidelines and subscribed by non-resident in foreign currency and convertible into ordinary
shares of the issuing company, wholly or partly, based on any equity-linked warrants attached
to debt instruments.

Meaning and Concept of FCCBs:

Foreign Currency Convertible Bonds are unsecured borrowings. They carry a fixed rate of
interest. Foreign Currency Convertible Bonds are attached with an option for conversion into a
fixed number of equity shares of the issuer company. Interest and redemption price where
conversion option is not exercised is payable in dollars. Interest rates are very low by Indian
domestic standards. Foreign Currency Convertible Bonds are denominated in any freely
convertible foreign currency.

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Example
Suppose a company ‘A’ issues bonds with following terms –
Issue Price of the Bond Rs. 1000
Coupon rate 2%
Maturity 2 years
Convertible into equity shares @ Rs.800 per share

Now suppose an investor subscribes to 4 of these bonds. Thus the total investment is Rs.4000.
On this investment, he is entitled to get an interest @ 2% for 2 years. On the maturity date,
i.e. after 2 years, the investor will have an option – to either claim full redemption of the
amount from the company or get the bonds converted into fully paid equity shares @ Rs. 800
per share. Thus if he goes for the conversion he will be entitled to 5 (4000/800) equity shares.
The choice he makes will depend on the market price of the share on the date of conversion.

If the shares of the company ‘A’ is trading at lower than Rs.800, let’s say Rs.500, the investor
will be better off by claiming full redemption of his bonds and buying the shares from the
market. In this case, he will get 8 (4000/ 500) equity shares as against 5 which he was
getting on conversion. Similarly if the market price of the share is higher than Rs. 800, the
investor will benefit by getting its shares converted. Thus, on the day of maturity, an investor
will seek full redemption if the conversion price is higher than the current market price, and
will go for conversion if the conversion price is less than the current market price.

FOREIGN CURRENCY EXCHANGEABLE BONDS

An FCEB involves three parties -

(i) The issuer company (issuer),
(ii) The offered company (OC) and
(iii) Investor.
1. Under this option, an issuer company may issue FCEBs in foreign currency, and these FCEBs
are convertible into shares of another company (offered company) that forms part of the same
promoter group as the issuer company.

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2. For Example, company ABC Ltd. issues FCEBs, then the FCEBs will be convertible into shares
of company XYZ Ltd. that are held by company ABC Ltd. and where companies ABC Ltd. and
XYZ Ltd. form part of the same promoter group.
3. Unlike FCCBs that convert into shares of issuer itself, FCEBs are exchangeable into shares of
OC. Also, relatively, FCEB has an inherent advantage that it does not result in dilution of
shareholding at the OC level.

Conditions for issue of FCEB’s

Eligible Issuer: The Issuing Company shall be part of the promoter group of the Offered
Company and shall hold the equity share/s being offered at the time of issuance of FCEB.

Offered Company: The Offered Company shall be a listed company, which is engaged in a
sector eligible to receive Foreign Direct Investment and eligible to issue or avail of Foreign
Currency Convertible Bond (FCCB) or External Commercial Borrowings (ECB).

Entities not eligible to issue FCEB: An Indian company, which is not eligible to raise funds
from the Indian securities market, including a company which has been restrained from
accessing the securities market by the SEBI shall not be eligible to issue FCEB.

Eligible subscriber: Entities complying with the Foreign Direct Investment policy and adhering
to the sectoral caps at the time of issue of FCEB can subscribe to FCEB. Prior approval of the
Foreign Investment Promotion Board, wherever required under the Foreign Direct Investment
policy, should be obtained.

Entities not eligible to subscribe to FCEB: Entities prohibited to buy, sell or deal in securities
by the SEBI will not be eligible to subscribe to FCEB.

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INDIAN DEPOSITORY RECEIPTS

According to Section 2(48) of the Companies Act, 2013 “Indian Depository Receipt” means
any instrument in the form of a depository receipt created by a domestic depository in India
and authorised by a company incorporated outside India making an issue of such depository
receipts.

An IDR is an instrument denominated in Indian Rupee in the form of a depository receipt

created by a domestic depository (Custodian of securities registered with SEBI) against the
underlying equity of issuing company to enable foreign companies to raise funds from Indian
Securities Markets.

DERIVATIVES TRADING

Introduction
Derivatives are contracts which derive their values from the value of one or more of other
assets, known as underlying assets. For example, Futures, Options, etc.

Derivative includes: -
A) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk
instrument or contract for differences or any other form of security;
B) a contract which derives its value from the prices, or index of prices, of underlying securities;
C) commodity derivatives; and
D) such other instruments as may be declared by the Central Government to be derivatives.

WARRANT

Warrant means an option issued by a company whereby the buyer is granted the right to
purchase a number of shares (usually one) of its equity share capital at a given exercise price
during a given period.

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The holder of a warrant has the right but not the obligation to convert them into equity
shares. Thus in the true sense, a warrant signifies optional conversion. In case the investor
benefits by conversion of warrant, then he will convert the warrants, else he may simply let
the warrant lapse.

For example if the conversion price of the warrant is Rs. 70/-and the current market price is
Rs.110/-, then the investor will convert the warrant and enjoy the capital gain of Rs.40/-. In
case the conversion is at Rs.70/- and the current market price is Rs.40/-, then the investor
will simply let the warrant lapse without conversion.

REAL ESTATE INVESTMENT TRUST (‘REIT’)

A real estate investment trust (“REIT”) is a company that owns, operates or finances income-
producing real estate. REITs provide all investors the chance to own valuable real estate, present
the opportunity to access dividend-based income and total returns, and help communities grow,
thrive, and revitalize.

The stockholders of a REIT earn a share of the income produced through real estate investment
without buying any finance property. Benefits of REITs include:
- Less Capital Intensive: Direct investment in real estate property is very capital intensive. But
each shares of REITs will be comparatively more affordable (it will not require large capital
outflows).
- Suitable for small Investors: Investing through REITs will eliminate dealing with builders,
thereby avoiding potential exposure to big builders
- Transparency: REITs stocks are listed in stock market, hence details will be available on public
domain
- Assured Dividends: REITs generates income in form of dividend. REITs dividend payment is
relatively assured as most of their income is in the form of rental (lease) income.
- Tax Free: Dividend earned by the investors of REIT will be tax free.
- Fast Capital Appreciation: capital appreciation can be phenomenal.
- Easy to buy: Investment in REITS easier than investment in Real Estate properties

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REITs are similar to mutual funds and shares and they provide income by way of :
- Dividend: REITs pay dividends to its shareholders.
- Capital Appreciation: As REIT stocks are listed in BSE and NSE, price appreciation of its
shares will also make money.

INFRASTRUCTURE INVESTMENT TRUSTS (‘INVITS’)

The primary objective of InvITs is to promote the infrastructure sector of India by encouraging
more individuals to invest in it. Typically, such a tool is designed to pool money from several
investors to be invested in income generating assets. The cash flow thus generated is distributed
among investors as dividend income. When compared to Real Estate Investment Trust or REITs,
the structure and operation of both are quite similar.

An InvIT is established as a trust and is registered with the SEBI. Typically, infrastructure
investment trust SEBI comprises 4 elements, namely –
- Trustee : They are required to be registered with SEBI as debenture trustees. Also, they are
required to invest at least 80% into infra assets that generate steady revenue.
- Sponsor : Typically, a body corporate, LLP, promoter or a company with a net worth of at
least Rs. 100 crore classifies as a sponsor. Further, they must hold at least 15% of the total
InvITs with a minimum lock-in period of 3 years or as notified by any regulatory requirement.
When it comes to a public-private partnership or PPP projects, sponsors serve as a Special
Purpose Vehicle (SPV).
- Investment manager : As a body corporate of LLP, an investment manager supervises all the
operational activities surrounding InvITs.
- Project manager : The authority is mostly responsible for executing projects. However, in the
case of PPP projects, it serves as an entity that also supervises ancillary responsibilities.

SECURITIZED DEBT INSTRUMENTS

Securitization is a financial process that involves issuing securities that are backed by assets,
most commonly debt. The assets are transformed into securities, and the process is called

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securitization. The owner of the securities receives an income from the underlying assets;
hence, the term asset-backed securities.

Securitized debt instruments come with various advantages over conventional forms of investing
and are more valuable to a portfolio. One of the most common types of securitized debt is
mortgage-backed securities.

Securitized debts can lower interest rates and free up capital for the bank, but they can also
encourage lending for reasons other than making a profit. A few privately placed SDIs have
already been listed on exchanges.

MUNICIPAL BONDS

Municipal bonds are also referred to as ‘muni bonds’. The urban local government and agencies
issue these bonds. Municipal bonds are issued when a government body wants to raise funds
for projects such as infrarelated, roads, airports, railway stations, schools, and so on. SEBI
issued guidelines in 2015 for the urban local bodies to raise funds by issuing municipal bonds.
Municipal bonds exist in India since the year 1997. Bangalore Municipal Corporation is the first
urban local body to issue municipal bonds in India. Ahmedabad followed Bangalore in the
succeeding years. The municipal bonds lost the ground after the initial investors’ attraction it
received and failed to raise the desired amount of funds. To revive the municipal bonds, SEBI
came up with guidelines for the issue of municipal bonds in 2015.

Municipality should meet the following eligibility criteria to issue municipal bonds in India:
- The municipality must not have a negative net worth in each of the three previous years.
- The municipality must have no default in the repayment of debt securities and loans availed
from the banks or non-banking financial companies in the last year.
- The municipality, promoter and directors must not be enlisted in the willful defaulters published
by the Reserve Bank of India (RBI). The municipality should have no record of default in the
payment of interest and repayment of principal with respect to debt instruments.

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EXCHANGE TRADED FUNDS (ETF)

- An Exchange traded fund (ETF) is a security that tracks an index, commodity, bonds, or a
basket of assets like an index fund and is traded in the securities market. In simple words,
ETFs are funds that track indexes such as Sensex, Nifty, etc.
- When you buy shares/ units of an ETF, you actually buy shares/ units of a portfolio that tracks
the performance of the index. ETFs just reflect the performance of the index they track.
- Unlike regular mutual funds, ETFs trade like a common stock on the stock exchange and the
price of an ETF changes as per the trading in the market takes place.
- The trading value of an ETF depends on the net asset value of the underlying stock that it
represents.

ETFs, generally, have higher daily liquidity and lower fees than mutual fund schemes.

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CHAPTER 2 – SECONDARY MARKET IN INDIA

SECONDARY MARKET

Stock exchange
Stock exchange is a market place for buying and selling of securities and ensuring liquidity to
them in the interest of the investors.

The Securities Contracts (Regulation) Act, 1956, has defined Stock Exchange :
(a) any body of individuals, whether incorporated or not, constituted before corporatisation
and demutualisation or
(b) a body corporate incorporated under the Companies Act, 2013 whether under a scheme of
corporatisation and demutualisation, for the purpose of assisting, regulating or controlling the
business of buying, selling or dealing in securities.

ROLE OF STOCK EXCHANGES

- Acts as a continuous market for securities

- Responsible for Securities Evaluation
- Mobilizes savings
- Enables healthy speculation
- Protect investors
- Ensures Liquidity
- Acts as an economic barometer
- Exercise vigilance /Control on companies
- Attracts foreign capital
- Stock exchanges ensure Safety of Capital and Fair Dealing
- Regulate company management

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INDIAN STOCK EXCHANGES

Trading in the Indian stock market majorly takes place in the below two stock exchanges –
- BSE - Bombay stock exchange
- NSE - National Stock exchange of India

The Bombay Stock Exchange (BSE) has been in existence since 1875, whereas the National
Stock Exchange (NSE), on the other hand, was founded in 1992 and started trading in 1994.

However, both BSE and NSE exchanges follow the same trading mechanism, trading hours,
settlement process, etc.

TRADING PLATFORM IN INDIA

MAIN BOARD
An applicant who desires to list its securities with NSE or BSE must fulfill the pre-requisites
as defined by respective stock exchange. An Issuer has to take various steps prior to making
an application for listing its securities on the stock exchange.

Debt – Public Issue

All Non-Convertible Debentures (NCDs) issued through Initial Public Offer gets listed on the
Capital Market segment of the Exchange. Every security in the trading system is given a
symbol with series representative of the security.

SME PLATFORM
BSE SME Platform
Established in 2012, BSE SME is the market leader amongst the SME platform in India. BSE
SME Platform offers an entrepreneur and investor friendly environment, which enables the
listing of SMEs from the unorganized sector scattered throughout India, into a regulated and
organized sector.

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NSE EMERGE Platform

NSE’s SME platform “EMERGE”, offers emerging businesses a new and viable option for raising
equity capital from a diversified set of investors in an efficient manner. EMERGE can play the
critical role of significantly improving access to risk capital for emerging companies. At the
same time, this platform will provide investors with exciting opportunities to invest in promising
SME’s / technology Startups. It offers opportunities to informed investors to invest in emerging
businesses with exciting growth plans, innovative business models and commitment towards
good governance and investor interest.

INNVATORS’ GROWTH PLATFORM

Innovators growth platform means the trading platform for listing and trading of specified
securities of issuers that comply with the eligibility criteria specified in regulation 283 of SEBI
(ICDR), 2018.

Company with intensive use of technology, information technology, intellectual property, data
analytics, biotechnology or nano-technology in their businesses can get their securities listed
at IGP.

SOCIAL STOCK EXCHANGE

Social Stock Exchange means a separate segment of a recognized stock exchange having
nationwide trading terminals permitted to register Not for Profit Organizations and / or list
the securities issued by Not for Profit Organizations in accordance with provisions of these
regulations.

Applicability of the Chapter:

These provisions shall apply to:
- a Not for Profit Organization seeking to only get registered with a Social Stock Exchange;
- a Not for Profit Organization seeking to get registered and raise funds through a Social Stock
Exchange; and
- a For Profit Social Enterprise seeking to be identified as a Social Enterprise under the provisions.

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Access to Social Stock Exchange:

A Social Stock Exchange shall be accessible only to institutional investors and non-institutional
investors. However, SEBI may permit other class(es) of investors, as it deems fit, for the
purpose of accessing Social Stock Exchange.

Social Stock Exchange Governing Council:

Every Social Stock Exchange shall constitute a Social Stock Exchange Governing Council to
have an oversight on its functioning.

Eligibility conditions for being identified as a Social Enterprise:

A Not for Profit Organization or a For Profit Social Enterprise, to be identified as a Social
Enterprise, shall establish primacy of its social intent.

In order to establish the primacy of its social intent, such Social Enterprise shall meet the
prescribed eligibility criteria and shall be indulged in at least one of the activities such as
eradicating hunger, poverty, malnutrition and inequality; promoting health care including mental
healthcare, sanitation and making available safe drinking water; promoting education,
employability and livelihoods; protection of national heritage, art and culture etc.

Requirements relating to registration for a Not for Profit Organization:

a. A Not for Profit Organization shall mandatorily seek registration with a Social Stock Exchange
before it raises funds through a Social Stock Exchange. Provided that a Not for Profit
Organization may choose to register on a Social Stock Exchange and not raise funds through
it.
b. The minimum requirements for registration of a Not for Profit Organization on a Social Stock
Exchange shall be specified by SEBI.
c. The Social Stock Exchange may specify the eligibility requirements for registration of a Not for
Profit Organization in addition to the minimum requirements specified by the SEBI.

Fund raising by Social Enterprises:

A Not for Profit Organization may raise funds on a Social Stock Exchange through:

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a. issuance of Zero Coupon Zero Principal Instruments to institutional investors and/or non-
institutional investors in accordance with the applicable provisions of this Chapter;
b. donations through Mutual Fund schemes as specified by the SEBI;
c. any other means as specified by the SEBI from time to time.

A For Profit Social Enterprise may raise funds through:

a. issuance of equity shares on the main board, SME platform or innovators growth platform or
equity shares issued to an Alternative Investment Fund including a Social Impact Fund;
b. issuance of debt securities;
c. any other means as specified by the SEBI from time to time.

Governing Council for Social Stock Exchange

1. Every SSE is required to constitute a Social Stock Exchange Governing Council (SGC) which
will have an oversight on the functioning of the Board.
2. The SGC shall comprise of individuals with relevant experience who can contribute to the
development of the Social Stock Exchange.
3. SGC will have a minimum of 7 members having representation from non-profit organisations,
Stock exchange, Social impact investors, Philanthropic and social sectors, Information
Repositories, Social Audit Profession and Capacity Building Fund. The same shall be supported
by the administrative staff from SSE.
4. The SGC is expected to provide oversight and guidance to facilitate the smooth functioning of
the operations of the Social Stock Exchange, with regard to registration, fund raising and
disclosures by Social Enterprises.

STOCK MARKET INDEX

An Index is used to give information about the price movements of products in the financial,
commodities or any other markets. Financial indexes are constructed to measure price
movements of stocks, bonds, T-bills and other forms of investments. Stock market indexes are
meant to capture the overall behaviour of equity markets.

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A stock market index is created by selecting a group of stocks that are representative of the
whole market or a specified sector or segment of the market. An Index is calculated with
reference to a base period and a base index value.

Stock market indexes are useful for a variety of reasons. Some of them are :
- They provide a historical comparison of returns on money invested in the stock market against
other forms of investments such as gold or debt.
- They can be used as a standard against which to compare the performance of an equity fund.
- In It is a lead indicator of the performance of the overall economy or a sector of the economy.
- Stock indexes reflect highly up to date information.
- Modern financial applications such as Index Funds, Index Futures, Index Options play an
important role in financial investments and risk management.

TYPES OF SECURITIES

Listed Securities: The securities of companies, which have signed the listing agreement with
a stock exchange, are traded as Listed Securities in that exchange.

Permitted Securities: To facilitate the market participants to trade in securities of such

companies, which are actively traded at other stock exchanges in India but are not listed on
an exchange, trading in such securities is facilitated as permitted securities.

TYPES OF DELIVERY

Delivery

Spot Hand Special

Delivery & On same or next On the date fixed by After date fixed by SE
payment day SE authorities

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MARGINS

Margin trading means limit provided by the Broker to its clients in order to boost trading. For
example: if an investor deposits Rs. 10,000 in his account and his broker provides him a margin
of 10 times on the investment, he can trade upto an amount of Rs. 1,00,000 from his account.
The margin money is to be deposited by the stockbroker with the Stock Exchange. The amount
to be deposited is calculated with reference to the number of shares transacted on forward
basis both in respect of purchase and sales, i.e., on long as well as short positions.

Margin Trading

Initial Maintenance

Minimum amount to be placed with Amount to be maintained with

broker before actual purchase broker calculated as %age of last
trading day’s closing price

“Initial margin” in this context means the minimum amount, calculated as a percentage of
the transaction value, to be placed by the client, with the broker, before the actual purchase.
The broker may advance the balance amount to meet full settlement obligations.

“Maintenance margin” means the minimum amount, calculated as a percentage of market

value of the securities, calculated with respect to last trading day’s closing price, to be
maintained by client with the broker.

BOOK CLOSURE AND RECORD DATE

In order to determine the name of shareholders entitled to

 Dividend
 Bonus
 Right share
 Any other right pertaining to shares

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Book like Register of Members and Transfer Books are closed and it is called as Book Closure.

Record Date is the date on which records of a company are closed for determining the
entitlement to dividends, proxies rights etc.

Duration: pursuant to the provisions of section 91 of the Companies Act, 2013, a Company can
close books for a maximum period of 45 days in year and for 30 days at one time

Notice: 7 days prior notice in newspapers is required to be given before such book closure
period.

BLOCK DEAL

SEBI provided guidelines outlining a facility of allowing Stock Exchanges to provide separate
trading window to facilitate execution of large trades. The Exchanges have introduced new
block window mechanism for the block trades from January 01, 2018.

SESSION TIMINGS
a) Morning Block Deal Window: This window shall operate between 08:45 AM to 09:00 AM.
b) Afternoon Block Deal Window: This window shall operate between 02:05 PM to 2:20 PM.

- In the block deal the minimum order size for execution of trades in the Block deal window
shall be Rs.10 Crore.
- The orders placed shall be within ±1% of the applicable reference price in the respective
windows as stated above.
- The stock exchanges disseminates the information on block deals such as the name of the
scrip, name of the client, quantity of shares bought/sold, traded price, etc to the general public
on the same day, after the market hours.

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BULK DEAL

- Bulk deal is a trade, where total quantity bought or sold is more than 0.5% of the number of
equity shares of a listed company.
- Bulk deal can be transacted by the normal trading window provided by brokers throughout the
trading hours in a day.
- Bulk deals are market driven and take place throughout the trading day.
- The stock broker, who facilitates the trade, is required to reveal to the stock exchange about
the bulk deals on a daily basis.
- Bulk orders are visible to everyone. If the bulk deal happens through a single trade, it should
be notified to the exchange immediately upon the execution of the order. If it happens through
multiple trades, it should be notified to the exchange within one hour from the closure of the
trading.

BASIS OF SENSEX

- Sensitive Index or Sensex is the stock market index indicator for the BSE. It is sometimes
referred as BSE S&P Sensex. It was first published in 1986 and is based on the market weighed
stock index of 30 companies based on the financial performance. The large, established
companies that represent various industrial sectors are a part of this.
- The calculation of Sensex is done by a Free-Float method that came into existence from
September 1, 2003.
- The free-float method takes into account the proportion of the shares that can be readily
traded in the market. This does not include the ones held by various shareholders and promoters
or other locked-in shares not available in the market.

Steps to calculate Sensex:

- The market capitalization is taken into account. This is done by multiplying all the shares
issued by the company with the price of its stock.

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- BSE determines a Free-float factor that is a multiple of the market capitalization of the
company. This helps in determining the free-float market capitalization based on the details
submitted by the company.
- Ratio and Proportion are used based on the base index of 100. This helps to determine the
Sensex.

NIFTY

- National Stock Exchange Fifty or Nifty is the market indicator of NSE. It is a collection of 50
stocks. It is also referred to as Nifty 50. It is owned and managed by India Index Services and
Products Ltd. (IISL).
- Nifty is calculated through the free-float market capitalization weighted method. It multiples
the Equity capital with a price to derive the market capitalization.
- The Index is determined on a daily basis by taking into consideration the current market value
(free float market capitalization) divided by base market capital and then multiplied by the
Base Index Value of 1000.

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BASICS OF INVESTING

Key risks in investing in securities market:

- Market risk or Systematic Risk: It means that an investor may experience losses due to
factors affecting the overall performance of financial markets and general economy of the
country
- Unsystematic Risk: Unsystematic risk can be described as the uncertainty attached with a
particular company or industry.
- Inflation risk: Inflation risk is also called as purchasing power risk. It is defined as the chance
that the cash flows from an investment would lose their value in future because of a decline
in its purchasing power due to inflation.
- Liquidity risk: Liquidity risk arises when an investment can’t be bought or sold quickly enough.
- Business Risk: It refers to the risk that a business of a company might be affected or may
stop its operations due to any unfavorable operational, market or financial situation.
- Volatility Risk: Volatility risk arises as the Companies’ stock prices may fluctuate over time.

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- Currency Risk: It refers to the potential risk of loss from fluctuating foreign exchange rates
that an investor may face when he has invested in foreign currency or made foreign currency-
traded investments.

Pre-requisites for investing in securities market:

- Bank account.
- Trading account or broking account with a SEBI registered stock broker of a recognized Stock
Exchange.

MARKET SURVEILLANCE

Market surveillance is either conducted by the Regulators or Exchanges or both. In India, the
primary responsibility of market surveillance has been entrusted to Stock exchanges and is
being closely monitored by SEBI.

Market Surveillance is broadly categorised in 2 parts viz,

- Preventive Surveillance and
- Post trade Surveillance

A. Preventive Surveillance -
- Stringent on boarding norms for Trading Members - Stringent net worth, back ground,
viability etc. checks while on boarding Trading Members.

- Index circuit filters - It brings coordinated trading halt in all equity and equity derivative
markets at 3 stages of the index movement, either way viz., at 10%, 15% and 20% based on
previous day closing index value.

- Trade Execution Range - Orders are matched and trades take place only if the trade price is
within the reference price and execution range.

- Order Value Limitation - Maximum Order Value limit allowed per order.

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- Cancel on logout - All outstanding orders are cancelled, if the enabled user logs out.

- Kill switch - All outstanding orders of that trading member are cancelled if trading member
executes kill switch.

- Risk reduction mode - Limits beyond which orders level risk management shall be initiated
instead of trade level.

- Compulsory close out - Incoming order, if it results in member crossing the margins available
with the exchange, such order will be partially or fully cancelled, and further disallow the
trading member to create fresh positions.

- Capital adequacy check - Refers to monitoring of trading member’s performance and track
record, stringent margin requirements, position limits based on capital, online monitoring of
member positions and automatic disablement from trading when limits are breached.

- Fixed Price Band / Dynamic Price band - Limits applied within which securities shall move;
so that volatility is curbed orderliness is bought about. For non-derivative securities price band
is 5%, 10% & 20%. For Derivative products an operating range of 10% is set and subsequently
flexed based on market conditions.

- Trade for Trade Settlement - The settlement of scrip’s available in this segment is done on
a trade for trade basis and no netting off is allowed.

- Periodic call auction - Shifting the security form continuous to call auction method

- Rumour Verification - Any unannounced news about listed companies is tracked on online
basis and letter seeking clarification is sent to the companies and the reply received is
disseminated.

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B. Post trade surveillance

- End of day alert - Alerts generated using statistical tools. The tool highlights stocks which
have behaved abnormally form its past behaviour

- Pattern recognition model - Models designed using high end tools and trading patterns which
itself identifies suspects involving in unfair trading practise.

- Transaction alerts for member - As part of surveillance obligation of members the alerts are
downloaded to members under 14 different heads.

RISK MANAGEMENT IN SECONDARY MARKET

The key risk management measures initiated by SEBI include:-

- Categorization of securities into groups 1, 2 and 3 for imposition of margins based on their
liquidity and volatility.
- VaR based margining system.
- Specification of Mark to Market margins.
- Specification of Intra-day trading limits and Gross Exposure Limits.
- Real time monitoring of the Intra-day trading limits and Gross Exposure Limits by the Stock
Exchanges.
- Specification of time limits of payment of margins.
- Collection of margins on upfront basis.
- Index based market wide circuit breakers.
- Automatic de-activation of trading terminals in case of breach of exposure limits.
- VaR based margining system has been put in place based on the categorization of stocks based
on the liquidity of stocks depending on its impact cost and volatility.
- Additional margins have also been specified to address the balance 1% cases.
- Collection of margins from institutional clients on T+1 basis.

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VARIOUS QUANTITATIVE INSTRUMENT OF CREDIT POLICY

Repo Rate: The rate at which the Commercial Banks borrow money from RBI. Reduction in
Repo Rate helps the Commercial Banks to get money at a cheaper rate and an Increase in
Repo Rate discourages the Commercial Banks to get money as the rate increases and becomes
expensive. The increase in the Repo Rate will increase the cost of borrowing and lending of the
banks which will discourage the public to borrow money and encourages them to deposit.

Cash Reserve Ratio (CRR) : Cash reserve ratio is the amount which the commercial banks
have to maintain as cash deposit with the Reserve Bank of India. RBI may increase the CRR
if it thinks that there is large amount of money supply in the economy. Conversely, it will
decrease the CRR if it is of the opinion that inflation is in control and the industry needs a
monetary boost up. The reduction in CRR will provide more money in the hands of commercial
banks which it will pass it on to the industry. More money in the hands of industry will boost
up production, consumption and employment.

Statutory Liquidity Ratio (SLR) : Statutory Liquidity Ratio is the amount which commercial
banks have to keep it with itself. SLR is also a very powerful tool to control liquidity in the
economy. To encourage industries to boost up their production, SLR may be decreased to put
more money in the hands of commercial banks. An increase in SLR is used as an inflation
control measure to control price rise.

Reverse Repo Rate (RRR): is the rate at which the RBI borrows money from the Commercial
Banks. An increase in the reverse repo rate will decrease the money supply and vice-versa,
other things remaining constant. An increase in Reverse Repo Rate means that Commercial
Banks will get more incentives to park their funds with the RBI, therefore decreasing the
supply of money in Market. An increase in the Repo Rate and the Reverse Repo rate indicates
strengthening of RBI’s Monetary Policy.

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Inflation Index
An index is just a collection of data that serves as a baseline for future reference. We use the
index model in all areas of life, from the stock market, to inflation. We index wage levels,
corporate profits as a percentage of GDP, and almost anything else that can be measured. We
do this to compare where we are now to where we have been in the past. An inflation index
is an economic tool used to measure the rate of inflation in an economy. There are several
different ways to measure inflation, leading to more than one inflation index with different
economists and investors preferring one method to another, sometimes strongly.

INFLATION INDICES
In India, Consumer Price Index (CPI) and Wholesale Price Index (WPI) are two major indices
for measuring inflation. In United States, CPI and PPI (Producer Price Index) are two major
indices. The Wholesale Price Index (WPI) was main index for measurement of inflation in India
till April 2014 when RBI adopted new Consumer Price Index (CPI) (combined) as the key
measure of inflation.

WHOLESALE PRICE INDEX

Wholesale Price Index (WPI) is computed by the Office of the Economic Adviser in Ministry
of commerce & Industry, Government of India. It was earlier released on weekly basis for
Primary Articles and Fuel Group. However, since 2012, this practice has been discontinued.
Currently, WPI is released monthly.
Salient notes on WPI are as follows:
Base Year
Current WPI Base year is 2004-05=100. It’s worth note that the base year for CPI is 2012
currently. This is one reason for increasing difference between CPI and WPI in recent times.

Items
There are total 676 items in WPI and inflation is computed taking 5482 Price quotations.
These items are divided into three broad categories viz. (1) Primary Articles (2) Fuel & power
and (3) Manufactured Products. WPI does not take into consideration the retail prices or prices
of the services.

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CONSUMER PRICE INDEX

Consumer Price Indices (CPI) released at national level are:
- CPI for Industrial Workers (IW)
- CPI for Agricultural Labourers (AL)/ Rural Labourers (RL)
- CPI (Rural/Urban/Combined).

While the first two are compiled and released by the Labour Bureau in the Ministry of Labour
and Employment, the third by the Central Statistics Office (CSO) in the Ministry of Statistics
and Programme Implementation. In India, RBI uses CPI (combined) released by CSO for
inflation purpose. Important notes on this index are as follows

Base Year
Base year for CPI (Rural, Urban, Combined) is 2012=100.

Number of items
The number of items in CPI basket include 448 in rural and 460 in urban. Thus, it makes it
clear that CPI basket is broader than WPI basket. The items in CPI are divided into 6 main
groups.

Key differences between WPI & CPI

- Primary use of WPI is to have inflationary trend in the economy as a whole. However, CPI is
used for adjusting income and expenditure streams for changes in the cost of living.
- WPI is based on wholesale prices for primary articles, administered prices for fuel items and
ex-factory prices for manufactured products. On the other hand, CPI is based on retail prices,
which include all distribution costs and taxes.
- Prices for WPI are collected on voluntary basis while price data for CPI are collected by
investigators by visiting markets.
- CPI covers only consumer goods and consumer services while WPI covers all goods including
intermediate goods transacted in the economy.
- WPI weights primarily based on national accounts and enterprise survey data and CPI weights
are derived from consumer expenditure survey data.

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DERIVATIVES TRADING

Introduction
Derivatives are contracts which derive their values from the value of one or more of other
assets, known as underlying assets. For example, Futures, Options, etc.

Derivative includes: -
A) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk
instrument or contract for differences or any other form of security;
B) a contract which derives its value from the prices, or index of prices, of underlying securities;
C) commodity derivatives; and
D) such other instruments as may be declared by the Central Government to be derivatives.

FUTURES

Future refers to a future contract which means an exchange traded forward contract to buy or
sell a predetermined quantity of an asset on a predetermined future date at a predetermined
price. Contracts are standardized and there’s centralized trading ensuring liquidity.
There are two positions that one can take in a future contract:
- Long Position -This is when a futures contract is purchased and the buyer agrees to receive
delivery of the underlying asset. (Stock/Indices/Commodities)
- Short Position -This is when a futures contract is sold and the seller agrees to make delivery
of the underlying asset. (stock/Indices/Commodities)

Currency Futures:
A currency future, also known as FX future, is a futures contract to exchange one currency for
another at a specified date in the future at a price (exchange rate) that is fixed on the
purchase date. Generally, the price of a future contract is in terms of INR per unit of other
currency e.g. US Dollars. Currency future contracts allow investors to hedge against foreign
exchange risk. Currency Derivatives are available on four currency pairs viz. US Dollars (USD),
Euro (EUR), Great Britain Pound (GBP) and Japanese Yen (JPY). Cross Currency Futures &

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Options contracts on EUR-USD, GBP-USD and USD-JPY are also available for trading in
Currency Derivatives segment.

OPTIONS CONTRACT

An option contract conveys the right, but not the obligation, to buy or sell a specific security
or commodity at specified price within a specified period of time. The right to buy is referred
to as a call option whereas the right to sell is known as a put option. An option contract
comprises of its type a put or call, underlying security or commodity expiry date, strike price
at which it may be exercised.

OPTION TRADING-MECHANISM

An option is a contract between two parties in which the maker of the option (option writer)
agrees to buy or sell a specified number of shares at later date for an agreed price (strike
price) to the holder of the option (option buyer) on a due date and time, when and if the
latter so desires, in consideration of a sum of money (premium). The premium is the price
which is required to be paid for purchase of right to buy or sell.
The terms of contract allow the holder, not the maker, to cancel the option.

Types of Option
Options are of two types: Call Option and Put Option.
In call option, an investor has a right to buy. An investor takes a call option, if he expects
that the market price will be higher than the strike price to earn the difference as his profit.

In put option, an investor has a right to sell. An investor takes a put option if he expects that
the market price will be lower than the strike price. The lower the market price than the strike
price, the higher will be the profit for the investor.

An investor can simultaneously buy call and put option, if he is uncertain about the market
conditions.

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Option Contracts are classified into two types on the basis of time at which the option can
be exercised:–
- European Option - European style options are those contacts where the option can be exercised
only on the expiration date.
- American Option - American style options are those contacts where the option can be exercised
on or before the expiration date. Options traded on Indian stock exchanges are of American
Style.

CURRENCY DERIVATIVES
Currency derivatives are financial contracts between the buyer and seller involving the exchange
of two currencies at a future date, and at a stipulated rate. Currency Derivative Trading is
similar to Stock Futures and Options trading. However, the underlying asset are currency pairs
(such as USDINR or EURINR) instead of Stocks. Currency Options and Currency Futures trading
is done in the Foreign Exchange markets. Forex rates are the value of a foreign currency relative
to domestic currency. The major participants of Currency Trading in India are banks,
corporations, exporters and importers. Benefits of currency derivatives include:
- Offers diversification to investments
- Hedging opportunities to importers & exporters, for their future payables and receivables.
- Gives trading opportunities because of volatility in currency
- Provides transparent rates to traders as it is exchange-traded

COMMODITY DERIVATIVES
Commodity is a physical good attributable to a natural resource that is tradable and supplied
without substantial differentiation by the general public. Commodities trade in physical (spot)
markets and in futures and forward markets. Spot markets involve the physical transfer of
goods between buyers and sellers; prices in these markets reflect current (or very near term)
supply and demand conditions.

Commodity derivatives are financial instruments whose value is based on underlying

commodities, such as oil, gas, metals, agricultural products and minerals. Other assets such as
emissions trading credits, freight rates and even the weather can also underlie commodity

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derivatives. Commodity Derivatives markets are a good source of critical information and
indicator of market sentiments. Since, commodities are frequently used as input in the
production of goods or services, uncertainty and volatility in commodity prices and raw materials
makes the business environment erratic, unpredictable and subject to unforeseeable risks.

Ability to manage or mitigate risks by using suitable hedging in commodity derivative products,
can positively affect business performance.

INVESTMENT STRATEGIES

Straddle: Combination of one put and one call option is known as straddle. Here, the investor
is insured against any movement on either side and has opportunity to gain from upward move
and down move.

Strap: Combination of one put and two call option is known as strap. Here, the investor is
confident that scrip price will change, but it is more likely to go up.

Strip: Combination of two puts and one call option is known as strip. Here, the investor is
confident that scrip price will change, but it is more likely to go down.

DIFFERENCE BETWEEN FORWARD CONTRACT AND FUTURES CONTRACT

Features Forward Contract Futures Contract

Mechanism Not traded on an exchange Traded on a exchange
Contract Terms Differs from trade to trade Standardized contracts
Liquidity Poor Very high
Price discovery Poor Better
Counter Party Risk Exists Does not exist

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Example
Case 1
Rajesh purchases 1 lot of Infosys Technologies MAY 3000 Put and pays a premium of Rs. 250.
This contract allows Rajesh to sell 100 shares of Infosys at Rs. 3000 per share at any time
between the current date and the end of May. In order to avail this privilege, all Rajesh has
to do is pay a premium of Rs. 25,000 (Rs. 250 a share for 100 shares).

The buyer of a put has purchased a right to sell. The owner of a put option has the right to
sell.

Case 2
If an investor is of the opinion that a particular stock say “Ray Technologies” is currently
overpriced in the month of February and hence expect that there will be price corrections in
the future. However he doesn’t want to take a chance, just in case the prices rise. So the best
option for the investor would be to take a Put option on the stock.

Lets assume the quotes for the stock are as under:

Spot Rs. 1040
May Put at 1050 Rs.10

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May Put at 1070 Rs. 30

So the inevstor purchases 1000 “Ray Technologies” Put at strike price of Rs. 1070 and Put price
of Rs. 30/-. The investor pay Rs. 30,000 as Put premium.

The position of investor in two different scenarios have been discussed below:
1. May Spot price of Ray Technologies = Rs 1020
2. May Spot price of Ray Technologies = Rs 1080

In the first situation you have the right to sell 1000 “Ray Technologies” shares at Rs.1,070/-
the price of which is Rs. 1020/-.
By exercising the option the investor earn Rs. (1070-1020) =Rs.50 per Put, which amounts to
Rs. 50,000/. The net income in this case is Rs. (50000-30000) =Rs. 20,000.

In the second price situation, the price is more in the spot market, so the investor will not sell
at a lower price by exercising the Put. He will have to allow the Put option to expire unexercised.
In the process the investor only lose the premium paid which is Rs. 30,000.

While buyer of an options has limited risk (Premium Amount), seller of an option has very
high rick (Market Price- Strike Price or Strike Price - Market Price), as the case may be,
depending on whether it is an call or put option.

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CHAPTER 3 - SECURITIES CONTRACTS (REGULATION) ACT, 1956

SECURITIES CONTRACTS (REGULATION) ACT, 1956

Securities
Securities include
(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a
like nature in or of any incorporated company or a pooled investment vehicle or other body
corporate;
(ii) derivative;
(iii) units or any other instrument issued by any Collective Investment Scheme to the Investors in
such schemes;
(iv) security receipt as defined in clause (zg) of Section 2 of the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act, 2002;
(v) units or any other such instrument issued to the investors under any mutual fund scheme;

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(vi) units or any other instrument issued by any pooled investment vehicle;
(vii) any certificate or instrument (by whatever name called) issued to an investor by any issuer
being a special purpose distinct entity which possess any debt or receivable, including mortgage
debt, assigned to such entity, and acknowledging beneficial interest of such investor in such
debt or receivable, including mortgage debt, as the case may be;
(viii) government securities;
(ix) such other instruments as may be declared by the Central Government to be securities; and
(x) rights or interests in securities.

DECLARATION OF ZERO COUPON ZERO PRINCIPAL INSTRUMENTS AS SECURITIES UNDER

THE SECURITIES CONTRACTS (REGULATION) ACT, 1956
The Central Government declares “zero coupon zero principal instruments” as securities.

“Zero coupon zero principal instrument” means an instrument issued by a Not for Profit
Organisation which shall be registered with Social Stock Exchange segment of a recognised
Stock Exchange in accordance with the regulations made by SEBI.

WHETHER THE HYBRID OPTIONALLY FULLY CONVERTIBLE DEBENTURES OF THE COMPANY

FALL WITHIN THE DEFINITION OF “SECURITIES” WITHIN THE MEANING OF COMPANIES
ACT, SEBI ACT AND SCRA?
It was held by the apex Court that although the OFCDs issued by the two companies are in
the nature of ‘hybrid’ instruments, it does not cease to be a “Security” within the meaning
of Companies Act, SEBI Act and SCRA. The definition of “Securities” under section 2(h) of
SCRA does not contain the term “hybrid instruments”, the definition provided in the Act is
an inclusive one and covers all “Marketable securities”
(Sahara India Real Estate v. Securities & Exchange Board of India).

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SPOT DELIVERY CONTRACT

Spot Delivery Contract means a contract which provides for –

a) Actual delivery of securities and the payment of a price therefore either on the same day as
the date of the contract or on the next day, the actual period taken for the dispatch of the
securities or the remittance of money therefore through the post being excluded from the
computation of the period aforesaid if the parties to the contract do not reside in the same
town or locality;
b) Transfer of the securities by the depository from the account of a beneficial owner to the
account of another beneficial owner when such securities are dealt with by a depository.

STOCK EXCHANGE

Stock Exchange means –

a) Any body of individuals, whether incorporated or not, constituted before corporatization and
demutualization under SCRA; or
b) A body corporate incorporated under the Companies Act, whether under a scheme of
corporatization and demutualization or otherwise,
For the purpose of assisting, regulating or controlling the business of buying, selling or dealing
in securities.

STOCK EXCHANGE

Concept of Stock Exchange

Stock Exchanges constitute the primary institution of secondary market. Stock Exchanges
represent the market place for buying and selling of securities and ensuring liquidity to them
in the interest of the investors.
There are 23 Regional Stock Exchanges in India. All of them are regulated in terms of Securities
Contracts (Regulation) Act, 1956 and the SEBI Act, 1992 and the rules and regulations made
there under. The Stock Exchanges are managed by the Board of Directors or Council of

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Management consisting of elected brokers and representatives of Government and public

appointed by SEBI.

RECOGNIZED STOCK EXCHANGE

Definition of Recognized Stock Exchange

Recognized Stock Exchange means a Stock Exchange, which is for the time being recognized
by the Central Government.

Application for Recognition (Sections 3, 4 & of SCRA)

Any Stock Exchange, desirous of being recognized for the purposes of Securities Contracts
(Regulation) Act, 1956, shall make an application to the Central Government in the prescribed
manner. The application shall be accompanied with the following documents:
a) A copy of bye-laws of the Stock Exchange; and
b) A copy of the rules relating to the constitution of a Stock Exchange.

The Central Government shall make such enquiry as may be necessary in this behalf and if it
is satisfied in all the respects, it may grant recognition to the Stock Exchange. The Central
Government shall take into account the following considerations while granting the recognition:
1) That the rules and bye-laws of the Stock Exchange are such that they ensure fair dealing and
investor protection;
2) That the Stock Exchange is willing to comply with any conditions which the Central government
may impose; and
3) That grant of recognition on Stock Exchange is in the interest of securities trade and public
interest.

Grant of recognition shall be published in the Gazette of India and also the Official Gazette
of the State in which the principal office of the Stock Exchanges is situated.
In the interest of securities trade or public interest, if the Central Government is of the opinion
that recognition granted to a Stock Exchange should be withdrawn, it shall serve a written
notice on the governing body of the Stock Exchange. The Governing Body shall be given a

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reasonable opportunity of being heard. Thereafter if the Central Government is satisfied, it

shall withdraw the recognition granted to the Stock Exchange, by way of notification in the
Official Gazette. It may be noted that such withdrawal of recognition shall not affect the
validity of any contract entered into before the date of examination.

CORPORATISATION OF STOCK EXCHANGE

Corporatisation of Stock Exchange is the process of converting the organizational structure of

the Stock Exchange from a non-corporate structure to a corporate structure. Traditionally, some
of the stock exchanges in India were established as association of persons such as Bombay
Stock Exchange. Corporatisation of such exchanges is a process of converting them into
incorporated companies.

DEMUTUALISATION OF STOCK EXCHANGE

Demutualisation refers to transition process of an Exchange from mutually owned association

to a company owned by shareholders. In other words, transforming the legal structure of an
exchange from a mutual form to a business corporation form is referred to as demutualization.

The above, in effect, means that after demutualization, the ownership, the management and
the trading rights at the Exchange are segregated from one another.

DEMUTUALISATION OF STOCK EXCHANGES

The process of demutualization is to convert the traditional “not for-profit” stock exchanges
into a “for profit”company and this process is to transform the legal structure from a mutual
form to a business corporation form. The important features of the demutualisation exercise
are as follows :
1) The board of a stock exchange should consist of 75% public interest/ shareholder directors and
only 25% broker directors, and

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2) 51% shareholding of the stock exchange should be divested to public/ investors and only 49%
of shareholding can remain with the trading member brokers.

The options prescribed for divestment/dilution of brokers’ shareholding in a stock exchange are
as follows:
1) Offer for sale, by issue of prospectus, of shares held by trading member brokers.
2) Private placement of shares
3) Fresh issue of shares to the public through an IPO.

MEMBERSHIP OF STOCK EXCHANGE

Membership of Stock Exchanges is generally given to persons who are financially sound and
who have adequate experience and training in the stock market. Their enrolment as member is
regulated and controlled by SBI to whom they have to pay an annual charge. A member of the
Stock Exchange is called broker who can transact on behalf of his clients as well as on his
own behalf. He can also take the assistance of sub-broker, whom he can appoint under the
procedure of registration.

Trading procedure at Stock Exchanges

The trading procedure involves the following steps:
1) Placing of the order by the client
2) Entry in order book by the broker
3) Execution of order or contract
4) Preparation of contract note
5) Entry in client register and settlement register
6) Actual delivery of the securities by the broker or by the client
7) Preparation of bill or deliver note
8) Entry in client register
9) Payment.
Trading takes place regularly on each weekday, except Saturdays, Sundays and notified holidays.
Stock Exchange used to have extra sessions for special occasions like Diwali, budget, etc.

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LISTING OF SECURITIES

Every company issuing shares or debentures to the public by issue of prospectus shall make
an application to one or more Stock Exchange for permission for enlistment of shares. (Sec.
73(1) of Companies Act, 1956)

Where a prospectus states that an application has been made for the share or debentures to
be dealt in on one or more recognized Stock Exchange, such allotment will be void, if the
permission has not been granted by the Stock Exchange or each such Stock Exchange, as the
case may be, before the expiry of ten weeks from the date of the closing of the subscription
list. (Sec. 73(1A) of Companies Act, 1956)

Sec. 73(1A) implies that if an application has been made to two or more Stock Exchange then
the permission should be granted by all these Stock Exchange, for the allotment to be valid.
Otherwise, the allotment will be void.

However, where a Stock Exchange refuses to grant permission or fails to dispose the application
within ten weeks of the date of closing of the subscription list the company may appeal to
the Securities Appellate Tribunal within 15 days of the date of refusal/expiry of the said ten
weeks. In case an appeal is preferred, the allotment shall not be void until the appeal is decided.
Thus, the allotment will be void only if the appeal is negotiated.
Where the permission has not been applied or such permission having been applied has not
been granted, the company shall repay the entire amount, without interest, within 8 days from
the date the company becomes liable to repay it. Beyond 8 days, the company and every
director of the company who is an officer in default shall be jointly and severally liable to
repay the money with an interest of 15% p.a.

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Types of listing
Listing of securities falls under five groups;
1. Initial listing:
If the shares or securities are to be listed for the first time by a company on a Stock Exchange,
it is called initial listing.

2. Listing for public issue:

When a company whose share are listed on a Stock Exchange comes out with a public issue
of securities, it has to list such issue with the Stock Exchange.

3. Listing for Rights Issue:

When companies whose securities are listed on the Stock Exchange issue securities to existing
shareholders on rights basis, it has to list such rights issues on the concerned Stock Exchange.

4. Listing of Bonus Shares:

Companies issuing shares as a result of capitalization of profit through bonus issue shall list
such issues also on the concerned Stock Exchange.

5. Listing for merger or amalgamation:

When new shares are issued by an amalgamated company to the shareholders of the
amalgamating company, such shares are also required to be listed on the concerned Stock
Exchange.

Advantages of Listing
The following benefits are available when securities are listed by a company in the Stock
Exchange-
a) Public image of the company is enhanced.
b) The liquidity of the security is ensured making it easy to buy and sell the securities in the
Stock Exchange.

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c) Listing procedure compels company management to disclose important information to the

investors enabling them to make crucial decisions with regard to keeping or disposing of such
securities.
d) Listed companies command better support from banks and financial institutions in the form
of loans and investment.

Multiple listing
A company with a paid up capital of over Rs. 5 crores should list its securities or have its
securities permitted for trading, on at least one more Stock Exchange in addition to the
Designated Stock Exchange. Multiple listing provides arbitrage opportunities to the investors
whereby they can make profit based on the difference in the prices prevailing in the said
exchanges.

TYPES OF SECURITIES

Securities traded in the Stock Exchange can be classified as follows:

1. Specified Securities:
The securities in which forward trading is allowed are referred as specified securities. In this
case the buyers can carry forward the transaction form one settlement cycle of outstanding
transactions to another settlement cycle.

2. Unspecified Securities :
The securities, which are traded on cash basis, are termed as unspecified securities, and cannot
be carried forward from one settlement to another but have to be settled within one settlement
period.

3. Permitted Securities :
The securities listed on some of the recognized Stock Exchanges, when permitted to be traded
by those Stock Exchanges where they are not listed are called permitted securities. Such
permission is given if suitable provisions exist in the regulations of the concerned Stock
Exchanges.

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POWERS OF CENTRAL GOVERNMENT

1. To call for periodical returns and make direct enquiries

Every stock exchange and every member shall maintain and preserve books of accounts, and
other documents for a period not exceeding five years in the interest of the trade or in the
public interest.

2. To direct rules or make rules

Where the Central Government is of opinion that it is necessary or expedient, it may, by order
in writing together with a statement of the reasons direct the recognised stock exchanges to
make any rules or to amend any rules already made. The rules so made or amended shall be
published in the Gazette of India and also in the Official Gazette of the State where the
principal or offices of the recognised stock exchange is situated.

3. To supersede Companies of Stock Exchanges

The Central Government may serve on the governing body a written notice that the Central
Government is considering the super session of the governing body for the reasons specified in
the notice and after giving an opportunity to the governing body to be heard, it may, by
notification in the Official Gazette, declare the governing body of such stock exchange to be
superseded, and may appoint any person or persons to exercise and perform all the powers and
duties of the governing body.

The governing body of which is superseded, the person or persons appointed shall hold office
for such period as may be specified in the notification.

4. To Suspend Business of Recognised Stock Exchange

If in the opinion of the Central Government, an emergency has arisen, and the Central
Government considers it necessary so to do, it may, by notification in the Official Gazette,
direct a recognised stock exchange to suspend its business for such period not exceeding seven
days, and if, in the opinion of the Central Government, the interest of the trade or the public

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interest requires that the period should be extended, may, by like notification extend the said
period from time to time.

5. To Issue Directions
If, after making or causing to be made an inquiry, SEBI is satisfied that it is necessary
a) in the interest of investors
b) to prevent the affairs of any recognised stock exchange, or, clearing corporation
c) to secure the proper management of any such stock exchange or clearing corporation or agency
It may, by notification in the Official Gazette, declare that section 13 to apply to such State
or States or area and every contract so made between members of such stock exchange shall
be illegal.

6. To prohibit contracts in certain cases

If the Central Government is of opinion that it is necessary to prevent undesirable speculation
in specified securities in any State or area, it may, by notification in the Official Gazette,
declare that no person in the State or area shall, without the permission of the Central
Government, enter into any contract for the sale or purchase of any security.

All contracts entered into after the date of the notification issued thereunder shall be illegal.

7. To grant Immunity
If the Central Government is satisfied, that any person, who is alleged to have violated any of
the provisions of this Act and who has made a full and true disclosure in respect of alleged
violation, grant to such person, immunity from prosecution for any offence under this Act, or
also from any penalty.

An immunity granted to a person may, be withdrawn by the Central Government, if it is

satisfied that such person had, not complied with the condition on which the immunity was
granted or had given false evidence.

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8. To delegate or to make rules

Every rule made under this Act shall be laid, before each House of Parliament, while it is in
session, for a total period of thirty days, both Houses agree in making any modification in the
rule or both Houses agree that the rule should not be made, the rule shall thereafter have
effect only in such modified form or be of no effect, so, however, that any such modification
or annulment shall be without effect to the validity of anything previously done under that
rule.

POWERS OF RECOGNISED STOCK EXCHANGE

1. To make rules restricting voting rights

A recognised stock exchange may make rules or amend any rules made by it to provide for all
or any of the following matters, namely -
a) the restriction of voting rights to members only in respect of any matter placed before the
stock exchange at any meeting;
b) the regulation of voting rights in respect of any matter placed before the stock exchange at
any meeting so that each member may be entitled to have one vote only, irrespective of his
share of the paid-up equity capital of the stock exchange;
c) the restriction on the right of a member to appoint another person as his proxy to attend and
vote at a meeting of the stock exchange; and
d) such incidental, consequential and supplementary matters.

2. To make bye laws

Any recognised stock exchange may, subject to the previous approval of SEBI, make bye-laws
for the regulation and control of contracts.

CLEARING CORPORATION

A recognised stock exchange may, with the prior approval of the SEBI, transfer the duties and
functions of a clearing house to a clearing corporation, being a company incorporated under the
Companies Act, 2013, for the purpose of -

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(a) the periodical settlement of contracts and differences thereunder;

(b) the delivery of, and payment for, securities;
(c) any other matter incidental to, or connected with, such transfer.
Every clearing corporation shall make bye-laws and submit the same to the SEBI for its
approval.

SEBI may, on being satisfied that it is in the interest of the trade and also in the public
interest to transfer the duties and functions of a clearing house to a clearing corporation, grant
approval to the bye-laws submitted to it and approve the same.

PUBLIC ISSUE AND LISTING OF SECURITIES

No securities shall be offered to the public or listed on any recognized stock exchange unless
the issuer fulfil such eligibility criteria made by SEBI.

Every issuer intending to offer the certificates or instruments to the public shall make an
application, before issuing the offer document to the public, to one or more recognized stock
exchanges for permission for such certificates or instruments.

Where the permission applied for listing has not been granted or refused by the recognized
stock exchanges or any of them, the issuer shall repay all moneys, if any, received from
applicants in pursuance of the offer document, and if any such money is not repaid within
eight days after the issuer becomes liable to repay it, the issuer and every director or trustee
thereof, as the case may be, who is in default shall, on and from the expiry of the eighth day,
be jointly and severally liable to repay that money with interest at the rate of fifteen percent
per annum.

In reckoning the eighth day after another day, any intervening day which is a public holiday
under the Negotiable Instruments Act, 1881, shall be disregarded, and if the eighth day (as so
reckoned) is itself such a public holiday, there shall for the said purposes be substituted the
first day thereafter which is not a holiday.

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RIGHT OF APPEAL AGAINST REFUSAL TO LIST SECURITIES BY STOCK EXCHANGES

Where a recognised stock exchange refuses to list the securities of any company, the company
shall be entitled to be furnished with reasons for such refusal, and may, -
(a) within fifteen days from the date on which the reasons for such refusal are furnished to it, or
(b) where the stock exchange has omitted or failed to dispose of the application for permission for
the shares or debentures, within fifteen days from the date of expiry of the specified time or
within such further period, not exceeding one month, as the Securities Appellate Tribunal may,
on sufficient cause being shown, allow appeal to the Securities Appellate Tribunal having
jurisdiction in the matter against such refusal, omission or failure, and thereupon the Securities
Appellate Tribunal may, after giving the stock exchange, an opportunity of being heard, -
- vary or set aside the decision of the stock exchange; or
- where the stock exchange has omitted or failed to dispose of the application within the specified
time, grant or refuse the permission,
- and the stock exchange shall act in conformity with the orders of the Securities Appellate
Tribunal.

FACTORS TO BE TAKEN INTO ACCOUNT BY THE ADJUDICATING OFFICER

The adjudicating officer shall have due regard to the following factors,
namely -
(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a
result of the default;
(b) the amount of loss caused to an investor or group of investors as a result of the default;
(c) the repetitive nature of the default.

SETTLEMENT OF ADMINISTRATIVE AND CIVIL PROCEEDINGS

Any person, against whom any proceedings have been initiated or may be initiated under may
file an application in writing to SEBI proposing for settlement of the proceedings initiated or
to be initiated for the alleged defaults.

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The SEBI may, after taking into consideration the nature, gravity and impact of defaults, agree
to the proposal for settlement, on payment of such sum by the defaulter or on such other
terms as may be determined by the SEBI in accordance with the regulations made under the
SEBI Act, 1992.

No appeal shall lie against any order passed by the SEBI or adjudicating officer.

RECOVERY OF AMOUNTS

The Recovery Officer may draw up under his signature a statement in the specified form
specifying the amount due from the person and shall proceed to recover from such person the
amount specified in the certificate by one or more of the following modes, namely:-
(a) attachment and sale of the person’s movable property;
(b) attachment of the person’s bank accounts
(c) attachment and sale of the person’s immovable property;
(d) arrest of the person and his detention in prison;
(e) appointing a receiver for the management of the person’s movable and immovable properties,

ESTABLISHMENT OF SPECIAL COURTS

(a) The Central Government may, for the purpose of providing speedy trial of offences under this
Act, by notification, establish or designate as many Special Courts.
(b) A Special Court shall consist of a single judge who shall be appointed by the Central Government
with the concurrence of the Chief Justice of the High Court within whose jurisdiction the judge
to be appointed is working.
(c) A person shall not be qualified for appointment as a judge of a Special Court unless he is,
immediately before such appointment, holding the office of a Sessions Judge or an Additional
Sessions Judge.

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OFFENCES TRIABLE BY SPECIAL COURTS

All offences committed under this Act, shall be taken cognizance of and triable by the Special
Court established for the area in which the offence is committed or where there are more
Special Courts than one for such area, by such one of them as may be specified in this behalf
by the High Court concerned.

The Code of Criminal Procedure, 1973 shall apply to the proceeding before a special court and
for the purposes of the said provisions, the special court shall be deemed to be Court of Session
and the person conducting prosecution before a special court shall be deemed to be a public
prosecutor within the meaning of the Code of Criminal Procedure, 1973.

RULE 19 (2) (B) OF SECURITIES CONTRACTS REGULATION RULES, 1957

1) The minimum offer and allotment to public in terms of an offer document shall be-at least
twenty five per cent of each class or kind of equity shares or debenture convertible into equity
shares issued by the company, if the post issue capital of the company calculated at offer
price is less than or equal to one thousand six hundred crore rupees;

2) at least such percentage of each class or kind of equity shares or debentures convertible into
equity shares issued by the company equivalent to the value of four hundred crore rupees, if
the post issue capital of the company calculated at offer price is more than one thousand six
hundred crore rupees but less than or equal to four thousand crore rupees;

3) at least ten percent of each class or kind of equity shares or debentures convertible into equity
shares issued by the company, if the post issue capital of the company calculated at offer
price is above four thousand crore rupees but less than or equal to one lakh crore rupees.

4) at least such percentage of each class or kind of equity shares or debentures convertible into equity

shares issued by the company equivalent to the value of five thousand crore rupees and at least

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five per cent of each post issue capital of the company calculated at offer price is above one
lakh crore rupees.

However, the company referred to in sub-clause (ii) or sub-clause (iii), shall increase its public
shareholding to at least twenty five per cent within a period of three years from the date of
listing of the securities.

The company referred to in this sub-clause (iv) shall increase its public shareholding to at
least ten per cent within a period of two years and at least twenty-five per cent within a
period of five years, from the date of listing of the securities.

Further, it is provided that where the public shareholding in a listed company falls below 10%,
as a result of implementation of the resolution plan approved under section 31 of the Insolvency
and Bankruptcy Code, 2016, the same shall be increased to at least ten per cent, within a
maximum period of twelve months from the date of such fall, in the manner specified by the
SEBI.

The applicant company, who has issued equity shares having superior voting rights to its
promoters or founders and is seeking listing of its ordinary shares for offering to the public
under this rule and the regulations made by the SEBI in this regard, shall mandatorily list its
equity shares having superior voting rights at the same recognized stock exchange along with
the ordinary shares being offered to the public.

CONTINUOUS LISTING REQUIREMENT

Rule 19A (1) stipulates that every listed company other than public sector company shall
maintain public shareholding of at least 25%. However, any listed company which has public
shareholding below 25% on the commencement of the Securities Contracts (Regulation)
(Second Amendment) Rules, 2018, shall increase its public shareholding to at least twenty five
per cent, within a period of three years from the date of such commencement, in the manner
specified by the SEBI.

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For the purposes of this sub-rule, a company whose securities has been listed pursuant to an
offer and allotment made to public in terms of clause (b) of sub-rule (2) of rule 19, shall
maintain minimum 25% public shareholding from the date on which the public shareholding
in the company reaches the level of 25% in terms of said sub-clause.

Sub-rule (2) provides that where the public shareholding in a listed company falls below 25
% at any time, such company shall bring the public shareholding to 25% within a maximum
period of twelve months from the date of such fall in the manner specified by the SEBI.

However every listed public sector company whose public shareholding falls below twenty five
per-cent at any time after the commencement of the Securities Contracts (Regulation)
(Second Amendment) Rules, 2018, shall increase its public shareholding to at least twenty five
per-cent, within a period of two years from such fall, in the manner specified by the SEBI.

Where the public shareholding in a listed company falls below 25% in consequence to SCRR
(Amendment) Rules, 2015, such company shall increase its shareholding to atleast 25%, in
the manner specified by the SEBI within a period of three years, as the case may be, from
the date of notification of:
(a) the Depository Receipts Scheme, 2014;
(b) the SEBI (Share Based Employee Benefits) Regulations, 2014.

Sub rule (5) provides that where the public shareholding in a listed company falls below
twenty-five per cent, as a result of implementation of the resolution plan approved under
section 31 of the Insolvency and Bankruptcy Code, 2016, such company shall bring the public
shareholding to twenty-five per cent within a maximum period of three years from the date
of such fall, in the manner specified by the Securities and Exchange Board of India.

However, if the public shareholding falls below ten per cent, the same shall be increased to at
least ten per cent, within a maximum period of 12 months from the date of such fall, in the
manner specified by the Securities and Exchange Board of India. It is further provided that

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every listed company shall maintain public shareholding of at least five per cent as a result of
implementation of the resolution plan approved under section 31 of the Insolvency and
Bankruptcy Code, 2016.

Sub-rule (6) has been amended which provides that “the Central Government may, in public
interest, exempt any listed entity in which the Central Government or State Government or
public sector company, either individually or in any combination with other, hold directly or
indirectly, majority of the shares or voting rights or control of such listed entity, from any or
all of the provisions of this rule.”

DELISTING OF SECURITIES

A recognized stock exchange may delist any securities listed on any of the following grounds:-
(a) the company has incurred losses during the preceding three consecutive years and it has
negative networth;
(b) trading in the securities of the company has remained suspended for a period of more than six
months;
(c) the securities of the company have remained infrequently traded during the preceding three
years;
(d) the company or any of its promoters or any of its director has been convicted for failure to
comply with any of the provisions of the Act or the SEBI Act, 1992 or the Depositories Act,
1996 or rules, regulations, agreements made thereunder, as the case may be and awarded a
penalty of not less than rupees one crore or imprisonment of not less than three years;
(e) the addresses of the company or any of its promoter or any of its directors, are not known or
false addresses have been furnished or the company has changed its registered office in
contravention of the provisions of the Companies Act, 2013, or;
(f) shareholding of the company held by the public has come below the minimum level applicable
to the company as per the listing agreement under the Act and the company has failed to
raise public holding to the required level within the time specified by the recognized stock
exchange.

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A recognized stock exchange may, on the request of the company, delist any securities listed
thereon in accordance with the regulations made under the Act by the SEBI, subject to the
following conditions, namely :
(a) the securities of the company have been listed for a minimum period of three years on the
recognized stock exchange;
(b) the delisting of such securities has been approved by the two-third of public shareholders; and
(c) the company, promoter and/or the director of the company purchase the outstanding securities
from those holders who wish to sell them at a price determined in accordance with regulations
made by SEBI under the Act.

However, the condition at (c) may be dispensed with by the SEBI if the securities remain
listed at least on the National Stock Exchange of India Limited or the Bombay Stock Exchange
Limited.

DEFINITION OF POOLED INVESTMENT VEHICLES (‘PIVS’) [SECTION 2 (DA)]:

'Pooled Investment Vehicle' means a fund established in India in the form of a trust or
otherwise, such as mutual fund, alternative investment fund, collective investment scheme or
a business trust as defined in sub-section (13A) of section 2 of the Income tax Act, 1961 and
registered with the Securities and Exchange Board of India, or such other fund, which raises
or collects monies from investors and invests such funds in accordance with such regulations
as may be made by the Securities and Exchange Board of India in this behalf.

CLARITY ON ENFORCEMENT IN CASE OF DEFAULT BY POOLED INVESTMENT VEHICLES

Where any pooled investment vehicle defaults in repayment of principal amount or payment of
interest or any such amount due to the lender, the lender shall recover the defaulted amount
and enforce security interest, if any, against the trust assets, by initiating proceedings against
the trustee acting on behalf of such pooled investment vehicle in accordance with the terms
and conditions specified in the facility documents. However, on initiation of the proceedings
against the trust assets, the trustee shall not be personally liable and his assets shall not be
utilised towards recovery of such debt. The trust assets, which remain after recovery of
defaulted amount, shall be remitted to the unit holders on proportionate basis.

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CHAPTER 4 - OVERVIEW OF CAPITAL MARKET AND SEBI

REGULATORY FRAMEWORK

Securities laws comprises of the following enactments:

1. Companies Act, 2013;

2. Securities Contracts
(Regulation) Act, 1956;
Regulatory Framework

3. Securities and Exchange

Board of India Act, 1992;
and

4. Depositories Act, 1996

Companies Act, 2013

The Companies Act, 2013 is administered by the Ministry of Corporate Affairs and it has the
jurisdiction over the entire country. Further under the Ministry of Corporate Affairs, there are
six Regional Directors, one for each region i.e. north, east, west, south, north-west and south-
east located at Noida, Kolkata, Mumbai, Chennai, Ahmedabad and Hyderabad respectively. All
the states lying in one particular region come under the jurisdiction of Regional Director of
that region. Hence, all the Registrar of Companies of all the states falling under one particular
region of India act as sub-ordinate to the Regional Director of that region.

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In addition to aforesaid structure, Company Law Board (henceforth National Company Law
Tribunal) is also one administrative and quasi-judicial authority with regard to the Companies
Act, 2013.

SCRA, SEBI Act and Depositories Act

Securities Contracts (Regulation) Act, 1956, Securities and Exchange Board of India Act, 1992
and Depositories Act, 1996 are administered by Ministry of Finance, Government of India.
Further under the Ministry of Finance, Securities and Exchange Board of India (SEBI) is the
principal executive authority in respect of the aforesaid Acts.

In addition to this, Securities Appellate Tribunal (SAT) is the quasi-judicial authority with
regard to the aforesaid three Acts.

EVOLUTION AND GROWTH OF FINANCIAL SYSTEM IN INDIA

Initially after independence, Indian financial system was characterized by the following:
 No organized capital market;
 Rare case of public issue;
 Loans subject to stringent conditions;
 Few financial institutions and intermediaries, etc.

Capital Market got developed and organized with the replacement of Capital Issues (Control)
Act, 1947 by Securities and Exchange Board of India Act, 1992. As a consequence, Indian capital
market had seen as many as approximately 1,000 public issues per year. In the year 1969,
nationalization of banks took place and as a result loans were provided to rural areas on soft
terms and hence agriculture and industry got a boost.

A number of Financial Institutions were established in order to provide institutional source of

finance in the form of term loans to the industry. Government of India set up three major
financial institutions, namely, ICICI, IDBI and IFCI. Presently, ICICI is not in existence as it

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has been merged with the ICICI Bank. In addition to this a number of segment specific
financial institutions were also set up. For instance, Industrial Reconstruction Bank of India for
reconstruction purposes; EXIM Bank for export-import purposes; NABARD for agriculture
purpose; SIDBI for small industries; National Housing Bank for housing sector, etc.

Functions of financial systems

Following are some of the important functions of Financial Systems:
1. Regulation of currency through RBI.
2. Banking Functions through banks.
3. Management of national reserves of international currency.
4. Credit control by RBI.
5. Supply and deployment of funds for productive use.
6. Maintaining liquidity.

SECURITIES & EXCHANGE BOARD OF INDIA (SEBI)

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Introduction
SEBI has been formed under SEBI Act, 1992. SEBI Act 1992 has come into force with effect
from 30th January, 1992. SEBI is a body corporate having perpetual succession and common
seal. Further, being a body corporate, its separate property, contractual rights, right to sue and
be sued.

SEBI is an authority to regulate and develop the Indian capital market and protect the interest
of investors in the capital market. SEBI has replaced the Controller of Capital Issues, an
authority under Capital Issues (Control) Act, 1947.

Offices of SEBI
SEBI has its head office at Mumbai and its other offices are located at Delhi, Kolkata and
Chennai.

Management of SEBI (Sec 4)

The general superintendence, direction and management of the affairs of SEBI vests in its
Board of Members, which exercises
all powers and do all acts things
which may be exercised or done by
SEBI. Unless otherwise provided, the
Chairman shall also have all these
powers.

The Board of Members shall consist

of following members, namely:
(i) A chairman, who shall be appointed
by Central Government and he shall
be a person of ability, integrity and
standing in the field of securities market, law, finance, accountancy, economics, administration,
etc.,

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(ii) Two members from amongst the officials of the Ministry of the Central Govt. dealing with
Finance and administration of the Companies Act, 2013, who shall be nominated by the Central
Govt.;
(iii) One member from amongst the officials of RBI, who shall be nominated by RBI;
(iv) Five other members out of which at least three members shall be whole-time members, who
shall be appointed by Central Government and they shall be persons of ability, integrity and
standing in the field of securities market, law, finance, accountancy, economics, administration,
etc.;

Meetings of SEBI (Secs 7 & 7A)

All questions which come up before any meeting of SEBI shall be decided by a majority votes
of the members present and voting, and, in the event of an equality of votes, the Chairman,
or in his absence, the person presiding, shall have a second or casting vote.
An interested party, like a company director, can be a member of SEBI. But if he has any,
direct or indirect, pecuniary interest in any matter coming up for consideration at a meeting
of SEBI, he shall disclose the nature of his interest and shall not take part in deliberations or
decision of SEBI in respect of that matter.

Functions of SEBI (Sec.11)

The principal functions of SEBI are:
1. Protecting the interest of investor in securities market;
2. Promoting the development of securities market; and
3. Regulating the securities market.

The above functions include the following:

(i) Regulating the business in Stock Exchanges;
(ii) Registration and regulating the work of various intermediaries such as Brokers, Sub-brokers,
Registrar and Share Transfer Agents, Merchant Bankers, Underwriters, Portfolio Managers, etc.;
(iii) Registration and regulating the work of Depositories and Depositories Participants;
(iv) Registration and regulating the work of Foreign Institutional Investors, Credit Rating Agencies,
etc.

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(v) Registration and regulating the work of Venture Capital Funds, Mutual Funds, Collective
Investment Schemes;
(vi) Promoting Investors’ education;
(vii) Prohibiting insider trading in securities;
(viii) Prohibiting fraudulent practices and unfair trading practices;
(ix) Regulating substantial acquisition of shares and takeover of companies;
(x) Undertaking inspection, conduction inquiries and audits of the Stock Exchanges, Mutual Funds
and other persons associated with the securities market.

POWERS OF SEBI

1. Power to regulate or prohibit issue of prospectus, offer documents (Sec. 11A)

SEBI may take the following measures for the protection of investors:
1. It may specify by regulations –
a) The matters relating to issue of capital, transfer of securities and other matters incidental
thereto; and
b) The manner in which such matters shall be disclosed by the companies.
2. It may, by a special or general order, -
a) Prohibit any company from issuing of prospectus, any offer document, or advertisement
b) soliciting money from the public for the issue of securities; and

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c) Specify the conditions subject to which the prospectus, such offer document or advertisement,
if not prohibited, may be issued.
3. It may specify the requirements for listing and transfer of securities and other matters
incidental thereto. It may be noticed be noted that the provisions of Section 11A of Securities
and Exchange Board of India Act shall not affect the provisions of the Companies Act, 2013
or Section 21 of the Securities Contracts (Regulation) Act, 1956.

2. Power of investigation of the affairs of an intermediary, etc. (Sec. 11C)

SEBI may appoint any person, known as Investigating Authority, to investigate the affairs of
an intermediary or a person associated with the securities market in the following
circumstances:
(a) Where SEBI has reasonable ground to believe that the transactions in securities are being dealt
with in a manner detrimental to the investors or the securities market; or
(b) Where SEBI has reasonable ground to believe that any intermediary or any person associated
with the securities market has violated any of the provisions of SEBI Act or the rules or the
regulations made or directions issued by SEBI thereunder.

The Investigating Authority may keep in its custody any books, registers, other documents and
record for 6 months. Thereafter, the Investigating Authority shall return the same to the person
who had produced such books etc. however, the Investigating Authority may again call for such
books etc. where any person producing books etc, to the Investigating Authority requires
certified copies of the same, the Investigating Authority shall give certified copies of such
books etc. to him.

The Investigating Authority may, with the authorization of the Magistrate of the First Class,
seize books and papers, where Investigating Authority has reasonable ground to believe that
books, registers, other documents and record may be destroyed, mutilated, altered, falsified or
secreted. However, the Magistrate shall not authorize seizure of books etc. of any listed public
company or a public company which intends to get its securities listed on any recognized stock
exchange unless such company indulges in insider trading or market manipulation.

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The Investigating Authority may keep the books etc. till the conclusion of the investigation.
The Investigating Authority shall inform the Magistrate when it returns the books, etc. Before
returning the books etc., the Investigating Authority may place mark of identification on them.

3. Power to make a cease and desist order (Sec. 11D)

SEBI may pass an order thereby requiring a person the cease and desist from committing
violation of the SEBI Act or rules made thereunder. SEBI shall exercise the aforesaid power
only after conducting an enquiry regarding violation.

It may be noted that SEBI shall not pass a cease and desist order against any listed company
or a public company which intends to get its securities listed on any recognized stock exchange,
unless it has reasonable ground to believe that such company has indulged in insider trading
or market manipulation.

INVESTIGATIONS

(1) Grounds for Investigation

Where the SEBI has reasonable ground to believe that:
- the transactions in securities are being dealt with in a manner detrimental to the investors or
the securities market; or
- any intermediary or any person associated with the securities market has violated any of the
provisions of this Act or the rules or the regulations made or directions issued by SEBI
thereunder;
it may, at any time by order in writing, direct any person specified in the order to investigate
the affairs of such intermediary or persons associated with the securities market and to report
thereon to the SEBI.

(2) Duty of officers to produce Accounts and Records

It is the duty of every manager, managing director, officer and other employee of the company
and every intermediary or every person associated with the securities market to preserve and
to produce to the Investigating Authority or any person authorised by it in this behalf, all the

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books, registers, other documents and record of, or relating to, the company or of or relating
to, the intermediary or such person, which are in their custody or power.

(3) Powers of Investigating Authority

The Investigating Authority may require any intermediary or any person associated with
securities market in any manner to furnish such information to, or produce such books, or
registers, or other documents, or record before it or any person authorized by it in this behalf
as it may consider necessary if the furnishing of such information or the production of such
books, or registers, or other documents, or record is relevant or necessary for the purposes of
its investigation.

The Investigating Authority may keep in its custody any books, registers, other documents and
record produced for six months and thereafter shall return the same to any intermediary or
any person associated with securities market by whom or on whose behalf the books, registers,
other documents and record are produced.

(4) To examine on oath

Any person, directed to make an investigation may, examine on oath, any manager, managing
director, officer and other employee of any intermediary or any person associated with securities
market in relation to the affairs of his business and may administer an oath accordingly and
for that purpose may require any of those persons to appear before it personally.

If any person fails without reasonable cause or refuses, he shall be punishable with
imprisonment for a term which may extend to one year, or with fine, which may extend to
one crore rupees, or with both, and also with a further fine which may extend to five lakh
rupees for every day after the first during which the failure or refusal continues.

(5) To take notes on examination

Notes of any examination shall be taken down in writing and shall be read over to, or by, and
signed by, the person examined, and may thereafter be used in evidence against him.

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(6) Seizure of Records

Where in the course of an investigation, the Investigating Authority has reasonable ground to
believe that the books, registers, other documents and record of, or relating to any, any
intermediary or any person associated with securities market may be destroyed, mutilated,
altered, falsified or secreted, the Investigating Authority may make an application to the
Magistrate or Judge of such designated Court in Mumbai, as may be notified by the Central
Government for an order for the seizure of such books, registers, other documents and records.

The authorised officer may requisition the services of any police officer or any office of the
Central Government, or of both, to assist him.

After considering the application and hearing the Investigating Authority, if necessary, the
Magistrate or Judge of the Court may, by order, authorize the investigating authority -
(a) to enter, with such assistance, as may be required, the place or places where such books,
registers, other documents and record are kept.
(b) to search that place or those places in the manner specified in the order and.
(c) to seize books, registers and other documents and records, it consider necessary for the purpose
of the investigation.

However, the Magistrate or Judge of the Designated Court shall not authorize seizure of books,
registers, other documents and record of any listed public company or a public company (not
being the intermediary specified under section 12) which intends to get its securities listed on
any recognized stock exchange unless such company indulges in insider trading or market
manipulation.

The Investigating Authority shall keep in its custody the books, registers, other documents and
record seized under this section for such period not later than the conclusion of the investigation
as it considers necessary and thereafter shall return the same to the company or the other
body corporate, or, as the case may be, to the managing director or the manager or any other

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person, from whose custody or power they were seized and inform the Magistrate or Judge of
the Designated Court of such return.

The Investigating Authority may, before returning such books, registers, other documents and
record as aforesaid, place identification marks on them or any part thereof.

Every search or seizure made under this section shall be carried out in accordance with the
provisions of the Code of Criminal Procedure, 1973 relating to searches or seizures made under
that Code.

PROHIBITION OF MANIPULATIVE AND DECEPTIVE DEVICES, INSIDER TRADING ETC.

Section 12A of the Act provides that a person shall not directly or indirectly:
(a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed
to be listed on a recognized stock exchange, any manipulative or deceptive device;
(b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities
which are listed or proposed to be listed on a recognized stock exchange;
(c) engage in any act, practice, course of business which operates or would operate as fraud or
deceit upon any person, in connection with the issue, dealing in securities which are listed or
proposed to be listed on a recognized stock exchange;
(d) engage in insider trading;
(e) deal in securities while in possession of material or non-public information or communicate
such material or non-public information to any other person, in a manner which is in
contravention of the provisions of this Act or the rules or the regulations made thereunder;
(f) acquire control of any company or securities more than the percentage of equity share capital
of a company whose securities are listed or proposed to be listed on a recognized stock exchange
in contravention of the regulations made under this Act.

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ADJUDICATIONS

The SEBI may appoint any of its officers not below the rank of Division Chief to be an
adjudicating officer for holding an inquiry in the prescribed manner after giving any person
concerned a reasonable opportunity of being heard for the purpose of imposing any penalty.

The adjudicating officer has powers to summon and enforce the attendance of any person
acquainted with the facts and circumstances of the case to give evidence or to produce any
document which in the opinion of the adjudicating officer, may be useful for or relevant to the
subject matter of the inquiry and if, on such inquiry, he is satisfied that the person
has failed to comply with the provisions, he may impose such penalty as he thinks fit in
accordance with the provisions of any of those sections.

SEBI may call for and examine the record of any proceedings under this section and if it
considers that the order passed by the adjudicating officer is erroneous to the extent it is not
in the interests of the securities market, it may, after making or causing
to be made such inquiry as it deems necessary, pass an order enhancing the quantum of
penalty, if the circumstances of the case so justify.

However, no such order shall be passed unless the person concerned has been given an
opportunity of being heard in the matter. Further, nothing contained in this section shall
be applicable after an expiry of a period of three months from the date of the order
passed by the adjudicating officer or disposal of the appeal under section 15-T,
whichever is earlier.

SETTLEMENT OF ADMINISTRATIVE AND CIVIL PROCEEDINGS

Any person against where any proceedings have been initiated or may be initiated may file an
application in writing to the SEBI proposing for settlement of proceeding initiated or to be
initiated for the alleged defaults.

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SEBI, may, after taking into consideration the nature, gravity and impact of defaults, agree to
the proposal for settlement, on payment of such sum the defaulter or on such other terms as
may be determined by the SEBI.

The settlement proceedings shall be conducted in accordance with the procedure specified in
the regulations made under this Act. No appeal shall lie under section 15T against any order
passed by the SEBI or adjudicating officer.

All the settlement amounts excluding the disgorgement amount and legal costs, realised under
this Act shall be credited to the Consolidated Fund of India.

SECURITIES APPELLATE TRIBUNAL (SAT)

Introduction
Section 15K of SEBI Act, 1992 empowers the Central Government to set up one or more
Tribunals, for the purpose of making appeals against the orders of SEBI and its adjudicating
officers. These Tribunals will be known as Securities Appellate Tribunal (SAT). In exercise of
the power conferred, the Central Government has set up one Tribunal at Mumbai.

Composition of SAT
SAT shall comprise of the following :
a) One Presiding Officer; and
b) Two or more Judicial or Technical Members as he may deem fit. However, every Bench
constituted shall include at least one Judicial Member and one Technical Member.
The Presiding Officer and the Members shall be appointed by the Central Government.

Presiding Officer
The Presiding Officer of SAT shall be appointed by the Central Govt. in consultation with the
Chief Justice of India.

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The person to be appointed as the Presiding Officer must be a sitting or retired Judge of the
Supreme Court or a sitting or a retired Chief Justice of a High Court or a Judge of High Court
for at least seven years. It may be noted that a person who is a Member of SEBI or holding
a position equivalent to Executive Director in SEBI shall not be appointed as Presiding Officer
of SAT during his tenure with the SEBI as well as within two years from the date on which
he ceases to hold office.

The Presiding Officer shall hold his office for a period of five years or up to the age of 70
years, whichever is earlier.

Members
Judicial member is, or has been, a Judge of High Court for at least five years, in the case of
a Judicial Member; or

The Presiding Officer and Judicial Members of the Securities Appellate Tribunal shall be
appointed by the Central Government in consultation with the Chief Justice of India or his
nominee.

The Technical Members of the Securities Appellate Tribunal shall be appointed by the Central
Government on the recommendation of a Search-cum-Selection Committee.

Technical Member
(i) is, or has been, a Secretary or an Additional Secretary in the Ministry or Department of the
Central Government or any equivalent post in the Central Government or a State Government;
or
(ii) is a person of proven ability, integrity and standing having special knowledge and professional
experience, of not less than fifteen years, in financial sector including securities market or
pension funds or commodity derivatives or insurance.

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A person shall not be qualified for appointment as Member of SAT, unless he is a person of
ability, integrity and standing who has shown capacity in dealing with problems relating to
securities market and has qualification and experience of corporate law, securities laws, finance,
economics or accountancy.

It may be noted that a person who is a Member of SEBI or holding a position equivalent to
Executive Director in SEBI shall not be appointed as Member of SAT during his tenure with
the SEBI as well as within two years from the date on which he ceases to hold office.

The Members shall hold their office for a period of five years or up to the age of 70 years,
whichever is earlier.

Appeal to SAT (Sec.15T)

Any person aggrieved-----
a) By an order of the SEBI, under SEBI Act, 1992 or the rules or regulations made thereunder; or
b) By an order made by an adjudicating officer under SEBI Act, 1992, may prefer an appeal to
Securities Appellate Tribunal; or
c) By an order of the Insurance Regulatory and Development Authority
d) By an order of the Pension Fund Regulatory and Development Authority

Within a period of forty-five days from the date on which a copy of the order made by the
SEBI or the Adjudicating Officer or the IRDA or the PFRDA as the case may be, is received
by him and it shall be in such form and be accompanied by such fee as prescribed.

On receipt of appeal and after giving the parties to opportunity of being heard SAT, pass order
as thinks fit, confirming, modifying or setting aside the order appealed against. The Securities
Appellate Tribunal may entertain an appeal after the expiry of the said period of forty-five
days if it is satisfied that there was sufficient cause for not filing it within that period.

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Powers of SAT (sec. 15u)

The SAT shall have the same powers as are given to a Civil Court under the Code of Civil
Procedure, 1908, while trying a suit, in respect of the following matters, namely:
(i) Summoning and enforcing the attendance of any person and examining him on oath;
(ii) Requiring the discovery and production of documents;
(iii) Receiving evidence on affidavits;
(iv) Issuing commissions of the examination of witnesses or documents;
(v) Reviewing its decisions;
(vi) Dismissing an application for default or deciding it ex parte;
(vii) Setting aside any order of dismissal of any application for default or any order passed by it ex
parte;
(viii) Any other matter which may be prescribed.

Appeal against the orders of SAT (sec. 15z)

Any person aggrieved by any decision or order of SAT may file an appeal to the Supreme Court.
It may be noted that the appeal can be made only on any question of law.

The appeal shall be filed within 60 days from the date of receiving a copy of the decision or
order of SAT. However, the Supreme Court may allow a further period of 60 days for making a
appeal, if it is satisfied that the applicant was prevented by sufficient cause from filing the
appeal within the first 60 days.

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POWERS OF CENTRAL GOVERNMENT

(a) To issue directions:

Central Government has powers to issue directions in writing to SEBI on questions of policy.
However, the Central Government shall give an opportunity to SEBI to express its views before
any such directions is given. The decision of the Central Government as to whether a question
is one of policy or not shall be final.

(b) To Supersede SEBI:

If at any time the Central Government is of opinion that:
(a) on account of emergency, SEBI is unable to discharge its functions and duties or
(b) SEBI has made default in complying with any direction issued by the Central Government and
as a result of such default the financial position of SEBI or the administration of SEBI has
deteriorated; or
(c) circumstances exist which makes it necessary in the public interest so to do, it may, by
notification, supersede SEBI for such period, not exceeding six months, as may be specified in
the notification.

Upon the publication of the notification, it will have the following effects:
(a) all the members from the date of supersession vacate their offices
(b) all the powers, functions and duties may be exercised or discharged by such person or persons
as the Central Government may direct; and
(c) all property owned or controlled by SEBI shall vest in the Central Government.

On the expiration of the period of supersession specified in the notification, the Central
Government may reconstitute SEBI by a fresh appointment and in such case any person or
persons who vacated their offices because of supersession shall not be deemed disqualified for
appointment.

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(c) Power to grant Immunity:

The Central Government may on the recommendations by SEBI, if satisfied that any person
who is alleged to have violated any of the provisions of this Act and who has made a full and
true disclosures in respect of alleged violations, grant to such persons, immunity from
prosecution for any offence.

It has also been provided that recommendations of SEBI shall not be binding upon the Central
Government. Further, an immunity granted to a person can be withdrawn by the Central
Government, if it is satisfied such person had, in the course of the proceedings not complied
with the condition on which the immunity was granted or had given false evidence. Such person
may be tried for the offence with respect to which the immunity was granted or for any other
offence of which he appears to have been guilty in connection with the contravention. He shall
also become liable to the imposition of any penalty under this Act to which such person would
have been liable had not such immunity been granted.

APPEAL TO THE CENTRAL GOVERNMENT

The Act provides that any person aggrieved by an order of SEBI may prefer an appeal to the
Central Government within such time as may be prescribed.
Every appeal made shall be made in prescribed form and shall be accompanied by a copy of
the order appealed against by such fees as may be prescribed.

CONTINUANCE OF PROCEEDINGS

Where a person dies, his legal representative shall be liable to pay any sum which the deceased
would have been liable to pay, if he had not died, in the like manner and to the same extent
as the deceased.
However, in case of any penalty payable under this Act, a legal representative shall be liable
only in case the penalty has been imposed before the death of the deceased person.

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The liability of a legal representative under this section shall be limited to the extent to which
the estate of the deceased is capable of meeting the liability.

CONSENT ORDER

Consent Order means an order settling administrative or civil proceedings between the regulator
and a person (Party) who may prima facie be found to have violated securities laws. Consent
Order provides flexibility of wider array of enforcement and remedial actions which will achieve
the twin goals of an appropriate sanction, remedy and deterrence without resorting to litigation,
lengthy proceedings and consequent delays.

Settlement for securities laws violations, was introduced in India in the year 2007. No appeal
shall lie to the Securities Appellate Tribunal from an order made by the SEBI or by an
adjudicating officer, with the consent of the parties. Similar provision is provided in the
Depositories Act.

SEBI notified the SEBI (Settlement Proceedings) Regulations, 2018 on November 30, 2018
which have come into effect from January 1, 2019.

ROLE OF COMPANY SECRETARY

 Right to Legal Representation:

Any person aggrieved (the appellant) may either appear in person or authorise one or more
chartered accountants or company secretaries (PCS) or cost accountants or legal practitioners
or any of its officers to present his or its case before the Securities Appellate Tribunal (SAT).
 The Securities and Exchange Board of India (SEBI) also recognises the Company Secretary as
the Compliance Officer and authorizes practicing company secretaries to issue various
certificates under its Regulations.

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RECOVERY OF AMOUNTS

If a person fails to pay the penalty imposed or fails to comply with any direction or fails to
comply with a direction of disgorgement order issued or fails to pay any fees, the Recovery
Officer may draw up a statement in the specified form specifying the amount due from the
person.

The Recovery Officer shall proceed to recover amount specified in the certificate by one or
more of the following modes,
(a) attachment and sale of the person’s movable property;
(b) attachment of the person’s bank accounts;
(c) attachment and sale of the person’s immovable property;
(d) arrest of the person and his detention in prison;
(e) appointing a receiver for the management of the person’s movable and immovable
properties.

Recovery Officer” means any officer of the SEBI who may be authorized, by general or
special order in writing, to exercise the powers of a Recovery Officer.

SCORES (SEBI COMPLAINTS REDRESSAL SYSTEM)

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1. SCORES is a web based centralized grievance redress system of SEBI (http://scores.gov.in).

2. SCORES enables investors to lodge and follow up their complaints and track the status of
redressal of such complaints online from the above website from anywhere.
3. This enables the market intermediaries and listed companies to receive the complaints online
from investors, redress such complaints and report redressal online.
4. All the activities starting from lodging of a complaint till its closure by SEBI would be online
in an automated environment and the complainant can view the status of his complaint online.
5. An email is generated instantaneously acknowledging the receipt of complaint and allotting a
unique complaint registration number to the complainant for future reference and tracking.
6. The entity concerned uploads an Action Taken Report (ATR) on the complaint.
7. SEBI peruses the ATR and closes the complaint if it is satisfied that the complaint has been
redressed adequately.
8. The concerned investor can view the status of the complaint online from the above website by
logging in the unique complaint registration number.

PROCESS FOR LODGING COMPLAINT ONLINE IN SCORE BY INVESTOR

a. From 1st August 2018, it has been made mandatory to register on SCORES for lodging a
complaint.
b. To become a registered user of SCORES, investors may click on “Register here” under “
Investor Corner” appearing on the homepage of SCORES portal. Investors will have to fill in
Registration form. Fields like Name, Address, E-mail Address, PAN and Mobile Number are
mandatory fields and are required to be filled up. The username and password of SCORES will
be sent to the investor’s registered email id. If an investor is already a registered user, they
can login by entering their username and password.
c. After logging into SCORES, investors must click on “Complaint Registration” under “Investor
Corner”.
d. Investor should provide complaint details.
e. Investors must select the correct complaint category, entity name, and nature of complaint.
f. Investors must provide complaint details in brief (up to 1000 characters).
g. A PDF document (up to 2MB of size for each nature of complaint) can also be attached along
with the complaint as supporting document.

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h. On successful submission of complaint, system generated unique registration number will be

displayed on the screen which may be noted for future correspondence. An email acknowledging
the complaint with complaint registration number will also be sent to the email id entered in
the complaint registration form. A text message will also be sent to the investor informing
them about registration of the complaint.

HANDLING OF THE COMPLAINTS BY LISTED ENTITIES AND SEBI REGISTERED

INTERMIDIARIES
It was seen that investors frequently lodged complaint on SCORES without actually taking the
matter up with the concerned company/ intermediary.

In view of the same, from August 01, 2018, complaints will be handled as follows:-
A. At the time of lodging of complaint, the investor is asked “Have you lodged a complaint with
the concerned intermediary / listed company for redressal of your complaint?”
B. If the investor selects the option “No”:
a. The complaint will be routed directly to the concerned entity. Since this is the first time the
issue will be raised with the concerned entity, such “Direct complaints” will be addressed
by the concerned entity and the response will come to the investor without any interference
of SEBI officials.
b. The concerned entity is required to send a response to the investor directly within 30 days.
c. If the concerned entity fails to send a response within 30 days to the investor, then the
complaint will be routed to SEBI automatically. Thereafter, the complaint will have a new
SCORES registration number.
d. In case the investor is dissatisfied with the redressal of the complaint, the investor has to
indicate the same against the complaint and then the complaint will come to SEBI. If the
investor does not indicate the same within 15 days of receipt of reply from the company, it
will be assumed that the investor is satisfied with the redressal and the complaint will be
closed.
C. If the investor selects the option “Yes”
a) The complainant has to provide the date of taking up the complaint and also the address where
the communication was last made.

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b) The complaint will be routed to SEBI. When the complaint comes to SEBI, the complaint is
examined and its decided whether the subject matter falls under the purview of SEBI and
whether it needs to be referred to concerned entity. After examination, SEBI forwards the
complaint to the concerned entity with an advice to send a written reply to the investor and
file an action taken.

WHEN CAN A CASE BE REFERRED FOR ARBITRATION

If the grievance is not resolved by the Stock Exchange/Depository due to disputes, an investor
can file arbitration subject to the Bye-laws, Rules and Regulations of the exchange / Depository.
All claims, differences or disputes between the investors and stock brokers/depository
participants can be filed for arbitration.

COMPLAINTS THAT COME UNDER THE PURVIEW OF SEBI

Complaints arising out of issues that are covered under SEBI Act, Securities Contract Regulation
Act, Depositories Act and rules and regulation made there under and relevant provisions of
Companies Act, 2013.

MATTERS NOT CONSIDERED AS COMPLAINTS IN SCORES

a) Complaint not pertaining to investment in securities market.

b) Anonymous Complaints (except whistleblower complaints).
c) Incomplete or un-specific complaints.
d) Allegations without supporting documents.
e) Suggestions or seeking guidance/explanation.
f) Not satisfied with trading price of the shares of the companies.
g) Non-listing of shares of private offer.
h) Disputes arising out of private agreement with companies/intermediaries.
i) Matter involving fake/forged documents.
j) Complaints on matters not in SEBI purview.

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k) Complaints about any unregistered/ un-regulated activity.

COMPLAINTS AGAINST WHICH TYPE OF COMPANIES CANNOT BE DEALT ON SCORES

Complaints against the following companies cannot be dealt through SCORES even though the
complaint may be against a listed entity/ SEBI registered intermediary:-
1. Complaints against companies which are unlisted/delisted and companies on Dissemination
Board of Stock Exchanges (except complaints on valuation of securities).
2. Complaints relating to cases pending in a court or subject matter of quasi-judicial proceedings,
etc.
3. Complaints falling under the purview of other regulatory bodies such as Reserve Bank of India,
(RBI), Insurance Regulatory and Development Authority of India (IRDAI), Pension Fund
Regulatory and Development Authority of India (PFRDAI), Competition Commission of India
(CCI), or complaints falling under the purview of other ministries.
4. Complaints against a company under resolution under the relevant provisions of the Insolvency
and Bankruptcy Code, 2016 (IBC).
5. Complaints against the companies where the name of company is struck off from Register of
Companies (RoC) or a vanishing company as published by MCA. Liquidated Companies or
companies under liquidation.

SCORES AUTHENTICATION FOR INTERMEDIARIES AND MII’S

SCORES user id and password details shall be sent through auto-generated e-mails, upon
completion of process of online grant of registration by SEBI. Stock Brokers and Depository
Participants are not required to obtain SCORES authentication since complaints against these
intermediaries shall continue to be routed through the platforms of the concerned Stock
Exchange/ Depository.

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TIMELINE FOR LODGING COMPLAINT ON SCORES

In order to enhance ease, speed and accuracy in the redressal of grievance, the complaint shall
be lodged on SCORES within 1 year from the date of cause of action, where
i. the complainant has approached the listed company or registered intermediary / MII, as the
case may be, for redressal of the complaint and,
ii. The concerned listed company or registered intermediary/ MII has rejected the complaint or,
iii. The complainant has not received any communication from the concerned listed company or
the registered intermediary / MII or,
iv. The complainant is not satisfied with the reply received or the redressal action taken by the
concerned listed company or an intermediary / MII.

SEBI reserves its right to reject a complaint lodged on SCORES, if the date of cause of action
is more than one-year-old and/or the complainant has not taken up the complaint with the
concerned entity prior to the said date.

ONE-TIME ‘REVIEW’ OPTION

To enhance investor satisfaction on complaint redressal, a one-time ‘Review’ option is also
available under SCORES wherein a complainant, if not satisfied with the extent of redressal of
grievance by the concerned listed company/ intermediary/ MII, opts for review of the extent of
the redressal, within 15 days from the date of closure of the complaint on SCORES. Thereafter,
the complaint shall be escalated to the supervising official of the dealing officer of SEBI.

PROCEDURE FOR HANDLING COMPLAINTS BY THE STOCK EXCHANGES

1. Investors are encouraged to initially take up their grievances for redressal with the concerned
listed company directly. SCORES platform can also be used to submit grievances directly to
the company for resolution, if the complainant has not approached the company earlier.
Companies are expected to resolve the complaint directly.
2. In case the company does not redress the complaint within 30 days from the date of receipt
of the complaint, such direct complaints shall be forwarded to Designated Stock Exchange
(DSE) through SCORES.

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3. At the time of lodging the complaint through SCORES platform, in case the complainant had
approached the company earlier, the complainant shall submit all such details of the complaint
in SCORES i.e., period of cause of event, date of grievance taken up with the entity, address
of the company corresponded earlier, etc. Such complaints shall be forwarded to the DSE.
4. Upon receipt of the complaint through SCORES platform, the DSE shall take up the complaint
with the company. The company is required to redress the complaint and submit an Action
Taken Report (ATR) within 30 days from the date of receipt of such complaint.
5. In case the ATR is not submitted by the company within 30 days or DSE is of the opinion
that the complaint is not adequately redressed and the complaint remains pending beyond 30
days, a reminder shall be issued by DSE to the listed company through SCORES directing
expeditious redressal of the grievance within another 30 days.
6. On being adequately satisfied with the response of the company with respect to the complaint,
the stock exchange shall submit an ATR to SEBI.
7. For any failure to redress investor grievances pending beyond 60 days by listed companies,
stock exchange shall initiate appropriate action against the listed company.

ACTION OF STOCK EXCHANGE FOR FAILURE TO REDRESS INVESTOR COMPLAINTS

In terms of SEBI circular SEBI/HO/CFD/CMD/CIR/P/2020/12 dated 22 January, 2020, Stock

Exchanges shall, having regard to the interest of investors and the securities market, inter alia
take action against listed companies for non- compliance with the provisions of the Listing
Regulations and circulars/guidelines issued thereunder, including failure to ensure expeditious
redressal of investor complaints under Regulation 13 of the Listing Regulations.

Stock exchanges shall levy a fine of Rs. 1000 per day per complaint on the listed entity for
violation of Regulation 13 (1) of SEBI (LODR) Regulations, 2015 read with SEBI circular no.
SEBI/HO/CFD/CMD/CIR/P/2020/12 dated 22 January, 2020. Fines shall also be levied on
companies which are suspended from trading.

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WHEN CAN SEBI TAKE ACTION FOR NON-RESOLUTION OF INVESTOR COMPLAINTS?

For listed companies: SEBI has empowered stock exchanges to levy fine for non-redressal of
investor complaints in terms of the relevant provisions of SEBI (Listing and Disclosure
Requirements) Regulations, 2015.

If the complaint is not redressed/ fine is not paid, the stock exchanges can direct the
depositories to freeze the entire shareholding of the promoter and promoter group in such
entity as well as all other securities held in the demat account of the promoter and promoter
group. If non-compliance continues, the stock exchanges may refer such cases to SEBI for
enforcement actions, if any.

SEBI MOBILE APPLICATION : RECENT DEVELOPMENT

In its efforts to improve the ease of doing business, SEBI dated March 5, 2020, launched a
Mobile Application for the convenience of investors to lodge their grievances in SEBI Complaints
Redress System (SCORES).

SCORES mobile app will make it easier for investors to lodge their grievances with SEBI, as
they can now access SCORES at their convenience of a smart phone. The Mobile App will
encourage investors to lodge their complaints on SCORES rather than sending letters to SEBI
in physical mode.

This is another effort of SEBI in improving digitalization in securities market. The App has all
the features of SCORES which is presently available electronically where investors have to lodge
their complaints by using internet medium. After mandatory registration on the App, for each
grievance lodged, investors will get an acknowledgement via SMS and e-mail on their registered
mobile numbers and e-mail ID respectively.

Investors can, not only file their grievances but also track the status of their complaint
redressal. Investors can also key in reminders for their pending grievances. Tools like FAQs on
SCORES for better understanding of the complaint handling process can also be accessed.

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Connectivity to the SEBI Toll Free Helpline number has been provided from the App for any
clarifications/help that investors may require.

Since its launch in June 2011, SEBI on an average has received about 40,000 complaints every
year. A total of 3,57,000 complaints has been resolved using SCORES platform, so far. As per
SEBI norms, entities against whom complaints are lodged are required to file an Action Taken
Report with SEBI within 30 days of receipt of complaints. The Mobile App “SEBI SCORES” is
available on both iOS and Android platforms.

SEBI (INFORMAL GUIDANCE) SCHEME, 2003

SEBI has issued SEBI (Informal Guidance) Scheme, 2003 for facilitating the various kind of
people, by providing informal guidance on the various aspects related to capital market.
Following persons may make a request for Informal Guidance under the Scheme:

 Any intermediary registered with SEBI.

 Any listed or prospective listed company.
 Any mutual fund trustee company or asset management company.
 Any acquirer or prospective acquirer under the SEBI (Substantial Acquisition of Shares &
Takeover) Regulations, 1997.

The request seeking informal guidance should state that it is being made under this scheme
and also state whether it is a request for a no-action letter or an interpretive letter and should
be accompanied with prescribed fees and addressed to the concerned Department of SEBI.

It should also describe the request, disclose and analyse all material facts and circumstances
involved and mention all applicable legal provisions. SEBI may dispose off the request as early
as possible and in any case not later than 60 days after the receipt of the request.

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The informal guidance may be sought for and given in two forms:
- No-action letters: The SEBI indicates that the Department would or would not recommend
any action under any Act, Rules, Regulations, Guidelines, Circulars or other legal provisions
administered by SEBI to the Board if the proposed transaction described in a request made is
consummated.

- Interpretive letters: The SEBI provides an interpretation of a specific provision of any Act,
Rules, Regulations, Guidelines, Circulars or other legal provision being administered by the SEBI
in the context of a proposed transaction in securities or a specific factual situation.

SEBI may not respond to the following types of requests:

(a) With general or incomplete factual situation;
(b) hypothetical situations;
(c) Where the requestor has no direct interest;
(d) Where the applicable legal provisions are not cited;
(e) Where a no-action or interpretive letter has already been issued;
(f) Where investigation, enquiry or other enforcement action has already been initiated;
(g) Cases which are subjudice;
(h) Where policy concerns require that the Department does not respond.

CONFIDENTIALITY OF REQUEST
1. Any person submitting a letter or written communication under this scheme may request that
it receive confidential treatment for a specified period of time not exceeding 90 days from the
date of the Department’s response.
2. The request shall include a statement of the basis for confidential treatment.
3. If the Department determines to grant the request, the letter or written communication will
not be available to the public until the expiration of the specified period.
4. If it appears to the Department that the request for confidential treatment should be denied,
the requestor will be so advised and such person may withdraw the letter or written
communication within 30 days of receipt of the advise, in which case the fee, if any, paid by
him would be refunded to him.

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5. In case a request has been withdrawn under clause (c), no response will be given and the
letter or written communication will remain with the SEBI but will not be made available to
the public.
6. If the letter or written communication is not withdrawn, it shall be available to the public
together with any written staff response.

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CHAPTER 5 – DEPOSITORIES & DEPOSITORY SYSTEM

BASIC CONCEPT OF DEPOSITORIES

Introduction
The Depositories Act, 1996 has introduced the system of depositories in India. It has come into
force with effect from 20th September, 1995.

A depository is an organization where the securities of an investor are held in the electronic
form at his request through a Depository Participant (DP). If the investor wants to utilize the

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services offered by a Depository, the investor has to open a beneficiary account (popularly
called as Demat Account) with the Depository through a DP.

DP is the representative or agent in the depository system and it maintains the investor’s
securities account balance and intimates to him the status of his holding of any security. For
e.g. share and debentures already in the depository mode, the buyer will become owner of the
said security in the depository within a day of settlement being made/completed. The buyer is
not required to apply to the company for registering the security in his name.

Dematerialization is the process by which physical share certificates are converted into
electronic form. Rematerialisation is the process by which electronic holdings are converted
back into physical certificates. The investor has to pay charges to the Depository and the DP
for opening of account and also for every transaction in the account.

Depository is an agency for keeping securities on deposit in electronic (paperless) from and
makes scripless trading possible. The physical form of securities could be held in electronic
form by way of immobilization and dematerialization.

Investors also have the option to keep their securities in the custody of an intermediary called
the Custodian. Custodian holds the securities of the investor in physical form. Such hand over
of securities to the custodian in physical form is called as Immobilization. While custodians
immobilize the physical securities by custodial function, depositories interact with the Investors
only through depository participants who are registered with depositories as well as SEBI.

Custodians provide services such as safe keeping of securities, documents of title on behalf of
client under a proper system of control including physical custody or maintenance of accounts
in depositories manually or in machine readable form etc. Custodial services generally provide
clearing services, registration and transfer processing, safe custody, corporate actions and
management information services.

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DEFINITION AND MEANING OF DEPOSITORY

According to Section 2 (e) of the Depositories Act, 1996, “Depository means a company formed
and registered under the Companies Act, 2013 and which has been granted a certificate of
registration under Section 12 (1A) of the Securities and Exchange Board of India Act, 1992”.

There are two depository players in the market i.e., National Securities Depository Limited
(NSDL) and Central Depository Service (India) Limited (CDSL).

CERTIFICATE OF COMMENCEMENT OF BUSINESS BY DEPOSITORIES

No depository shall act as a depository unless it obtains a certificate of commencement of

business from the SEBI in such form as may be specified by the SEBI (Depositories and
Participants) Regulations, 2018. The SEBI shall not grant a certificate unless it is satisfied
that the depository has adequate systems and safeguards to prevent manipulation of records

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and transactions. However no certificate shall be refused unless the depository concerned has
been given a reasonable opportunity of being heard.

DEFINITION AND MEANING OF DEPOSITORY PARTICIPANT

Depository Participant (DP) is the agent of the depository and is the interface between the
depository and the investor. According to SEBI Guidelines, financial institutions, banks,
custodians, stock brokers etc. can become depository participants.

Stocking Holding Corporation of India Limited (SHCIL) is the first depository participant in
India registered with NSDL. Besides SHCIL, a number of new and private and foreign banks
like Times Bank, HDFC Bank, ICICI Bank, IDBI Bank, Hong Kong Bank, Standard Chartered
Bank are providing shares depository services to its customers from its various branches.

ELIGIBILITY CONDITIONS FOR DEPOSITORY SERVICES

Any company or other institution to be eligible to provide depository services must :

- Has a net worth of not less than rupees one hundred crores.
- Be formed and registered as a company under the Companies Act, 2013.
- Be registered with SEBI as a depository under SEBI Act, 1992.
- Has framed bye-laws with the previous approval of SEBI.
- Has one or more participants to render depository services on its behalf.
- Has adequate systems and safeguards to prevent manipulation of records and transactions to
the satisfaction of SEBI.
- Complies with Depositories Act, 1996 and SEBI (Depositories and Participants) Regulations,
2018.
- Meets eligibility criteria in terms of constitution, network, etc.

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ELIGIBLE SECURITIES REQUIRED TO BE IN THE DEMAT MODE

SEBI has recently amended relevant provisions of SEBI (Listing Obligations and Disclosure
Requirements) Regulations, 2015 to disallow listed companies from accepting request for
transfer of securities which are held in physical form, with effect from April 1, 2019. The
shareholders who continue to hold shares and other types of securities of listed companies in
physical form even after this date, will not be able to lodge the shares with company / its
RTA for further transfer. They will need to convert them to demat form compulsorily if they
wish to effect any transfer. Only the requests for transmission and transposition of securities
in physical form, will be accepted by the listed companies / their RTAs.

DIFFERENCE BETWEEN DEPOSITORY AND CUSTODIAN

Depository – Share transferred in electronic form.

Custodian – Shares remain in physical form. Depository can legally transfer beneficial
ownership which a custodian cannot.

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ADVANTAGES OF HOLDING SECURITIES IN THE ELECTRONIC MODE

 Faster delivery and fund settlement.

 No odd lot – trading is possible in any lot.
 Eliminates risks associated with physical deliveries such as loss, theft, forgery etc.
 Eliminates handling of large volumes of paper.
 Facilitates pledge and hypothecation.
 Faster disbursement of non cash corporate benefits.
 Immediate transfer and registration of securities.
 Reduction in brokerage by many brokers for trading in dematerialized securities.
 Elimination of problems related to selling securities on behalf of a minor.

DEMATERIALIZATION

The procedure for dematerialization is as under:-

i. Submits dematerialization request form (DRF) along with the share certificates (transferred
in the name of the investor).
ii. Deface share certificates as “surrendered for dematerialization”.
iii. DP electronically transmits DRF to the depository.
iv. DP sends the share certificates and physical DRF to the RTA/Company.
v. Depository electronically transmits the demat request to the RTA Company.
vi. RTA/ Company checks authenticity of request and confirm the Depository.
vii. Depository confirms dematerialization request to DP.
viii. Investor’s account with DP is credited.
ix. DP sends Statement of Transaction to the investor.

IMMOBILIZATION

Immobilization of securities occurs when physical security certificates are stored or lodged with
Depository for safe custody. All subsequent transactions in these securities take place in book
entry form (electronic form). The actual owners have the right to withdraw their physical

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securities as and when they desire. The custodian in turn a Jumbo Certificate representing the
entire issue in the name of depository on behalf of the beneficial owner.

REMATERIALISATION

The procedure for Rematerialisation of securities is as follows:-

i. The beneficial owner sends the request in
Rematerialisation request form (RRF) to DP.
ii. DP intimates the Depository of such request
electronically.
iii. Depository confirms the Rematerialisation request to
the RTA/ Company.
iv. RTA/ Company updates account and prints certificates
and confirm the Depository.
v. Depository updates account and download the details
to DP.
vi. RTA/ Company dispatches the certificates to the holder thereof.
vii. DP also sends the intimation about Rematerialisation to its client.

FUNGIBILITY

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The Depositories Act, 1996 provides that all securities held in depository shall be fungible, i.e.,
all certificates of the same security shall become interchangeable. In electronic form, the
securities loses its identity exactly like money deposited in a bank account. If a person has a
Rs 500 note, it will have a serial number but when the same is deposited in the bank account,
its serial number is lost and it is mixed with other currencies in the system. Much like this is
the security held in electronic form. Once deposited with a depository in demat form, it also
loses its distinctive number, which is there so in case of shares held by an investor in physical
form.

PLEDGE OR HYPOTHECATION OF SECURITIES

Pledge or hypothecation means loan obtained by the

owner against his shares. If a beneficial owner (owner of
securities) intends to create a pledge/hypothecation on a
security owned by him, he shall make an application to
the Depository (NSDL/CDSL) through his Depository
Participant (Broker).

The Depository, after confirmation from the pledgee (loan provider) that the securities are
available from pledge with the pledgor (loan taker), shall, within 15 days of the receipt of
application, create and record the pledge and send the intimation of the same to the Depository
Participants of the pledgor and the pledge. On receipt of intimation, the Depository Participants
of both the pledgor and the pledge shall inform the pledgor and the pledge respectively of the
entry of creation of pledge/hypothecation.

The entry of pledge/ hypothecation made may be cancelled by the Depository if the pledgor or
pledgee makes an application to the Depository through their Depository Participants. It may
be noted that if the application for cancellation of the entry of pledge has been made by the
pledgor, then it shall be cancelled by Depository only with the prior concurrence of the pledge.

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RIGHTS OF DEPOSITORIES AND BENEFICIAL OWNER

A depository should be deemed to be the registered owner on behalf of a beneficial owner.

The depository does not have any voting rights. The beneficial owner is entitled to all the
rights and benefits and be subjected to all the liabilities in respect of his securities.

REGISTER OF BENEFICIAL OWNER

Every depository is required to maintain a register and an index of beneficial owners in the
manner provided in the Companies Act, 2013.

AUDIT UNDER SEBI (DEPOSITORIES AND PARTICIPANTS) REGULATIONS, 2018

1. SEBI has issued a circular on 31st Dec 2002 that all the issuer listed companies must
immediately comply with such Secretarial Audit.
2. This circular provides for reconciliation of total shares of a company held in NSDL, CDSL and
physical form by the shareholders with the total issued and listed capital of the company.
3. Thus every listed company is required to obtain a certificate on a quarterly basis from a
practicing CS or practicing CA, recording of the shares held in electronic form and in physical
form with the issued and listed capital of the company.
4. Every listed company is required to submit the aforesaid certificate to the Stock Exchanges
where the securities of the company are listed within 21 days of the close of relevant quarter.

INTERNAL AUDIT OF DEPOSITORY PARTICIPANTS

NSDL and CDSL, both the Depositories, have allowed Company Secretaries in Practice and
Chartered Accountants in Practice to undertake Internal Audit of the operations of Depository
Participants on a quarterly basis. While undertaking the Internal Audit function of a Depository
Participant, one has to ensure the following:

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1. That the operations of the Depository Participant are in compliance with the requirements of
the Depositories Act, SEBI (Depositories and Participants) Regulations, 2018, by laws and rules
of depositories and its agreement with the clients and depositories.
2. That there is no threat to business continuity, integrity of data processing system is maintained
at all times and methods are put in place to ensure that records are not lost, destroyed or
tampered with.
3. That the capacity of computer system, staff strength and internal procedures provides
reasonable checks with the business.

CONCURRENT AUDIT

Depository Participants have been advised to appoint a firm of qualified Chartered Accountants
or Company Secretary(s) holding a certificate of practice for conducting the concurrent audit.
In respect of account opening the auditor should verify all the documents including KYC
documents furnished by the Clients and verified by the officials of the Participants. The scope
of concurrent audit with respect to control and verification of DIS covers issuance and
verification of DIS.

The Concurrent Auditor should conduct the audit in respect of all accounts opened, DIS issued
and controls on DIS as mentioned above, during the day, by the next working day. In case
the audit could not be completed within the next working day due to large volume, the auditor
should ensure that the audit is completed within a week’s time.

Any deviation and/or non-compliance observed in the aforesaid areas should be mentioned in
the audit report of the Concurrent Auditor. The Management of the Participant should
comment on the observations made by the Concurrent Auditor.

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POWER OF THE SEBI

To Give Directions
SEBI, if after making an enquiry or inspection, the SEBI is satisfied that it is necessary in
the interest of investors or the securities market or to prevent the affairs of any depository
or participant being conducted in the manner detrimental to the interests of investors or the
securities market, it may issue such directions, -
(a) to any depository or participant or any person associated with the securities market; or
(b) to any issuer, as may be appropriate in the interest of investors or the securities market.

CONTRAVENTION BY COMPANIES

Where a contravention of any of the provisions of this Act or any rule, has been committed
by a company, every person who at the time the contravention was committed was in charge
of, and was responsible to, the company for the conduct of the business of the company, as
well as the company, shall be deemed to be guilty of the contravention and shall be liable
to be proceeded against and punished accordingly.

Nothing contained in this sub-section shall render any such person liable to any
punishment provided in this Act, if he proves that the contravention was committed
without his knowledge or that he had exercised all due diligence to prevent the commission of
such contravention.

Where a contravention of any of the provisions of this Act or any rule, regulation, direction
or order made thereunder has been committed by a company and it is proved that the
contravention has been committed with the consent or connivance of, or is attributable to
any neglect on the part of, any director, manager, secretary or other officer of the
company, such director, manager, secretary or other officer shall also be deemed to
be guilty of the contravention and shall be liable to be proceeded against and
punished accordingly.

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COGNIZANCE OF OFFENCES BY COURTS

No court shall take cognizance of any offence punishable under this Act or any rules or
regulations or bye-laws made there under, save on a complaint made by the Central Government
or State Government or the SEBI or by any person.

SEBI’S CYBER SECURITY & CYBER RESILIENCE FRAMEWORK FOR STOCK BROKERS /
DEPOSITORY PARTICIPANTS
Cyber security framework includes measures, tools and processes that are intended to prevent
cyber-attacks and improve cyber resilience. Cyber Resilience is an organization’s ability to
prepare and respond to a cyber-attack and to continue operation during, and recover from, a
cyber-attack.

The Frameworks inter-alia prescribes the following:

Depository Participants
- are mandated to conduct comprehensive cyber audit at least once in a financial year.
- shall submit with Stock Exchange/Depository a declaration from the MD/ CEO / Partners/
Proprietors certifying compliance with all SEBI Circulars and advisories related to Cyber security
from time to time, a long with the Cyber audit report.
- shall identify and classify critical assets based on their sensitivity and criticality for business
operations, services and data management.
- shall maintain up-to-date inventory of its hardware and systems, software and information
assets (internal and external), details of its network resources, connections to its network and
data flows.
- shall carry out periodic Vulnerability Assessment and Penetration Tests (VAPT) which include
critical assets and infrastructure components like Servers, Networking systems, Security devices,
load balancers, other IT systems pertaining to the activities done as Depository Participants.
- Brokers / Depository Participants shall conduct VAPT at least once in a financial year.

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INTERNATIONAL SECURITIES IDENTIFICATION NUMBER (ISIN)

The ISIN standard is used worldwide to identify specific securities such as bonds, stocks
(common and preferred), futures, warrant, rights, trusts, commercial paper and options. ISINs
are assigned to securities to facilitate clearing and settlement procedures. An ISIN is a 12-digit
alphanumeric code that uniquely identifies a specific security. It is issued by the National
Numbering Agency, present in each respective country. It is structured in a way that it includes
the country code where the headquarters of the issuing company are present, the specific
security identification number, and a check digit.

ROLE OF COMPANY SECRETARY

a. Right to Legal Representation:
In case of any decision of SEBI, the aggrieved entity/ company (the appellant) may either
appear in person or authorise one or more chartered accountants or company secretaries (PCS)
or cost accountants or legal practitioners or any of its officers to present his or its case before
the Securities Appellate Tribunal (SAT).
b. Internal Audit of Depository Participants:
The 2 (two) Depository services providers in India, viz., National Securities Depository Ltd.
(NSDL) and Central Depository Services (India) Limited (CDSL) have allowed Company
Secretaries in Whole-time Practice to undertake internal audit of the operations of Depository
Participants (DPs).
c. Reconciliation of Share Capital Audit:
Company Secretary is authorised to issue quarterly certificate with regard to reconciliation of
the total issued capital, listed capital and capital held by depositories in dematerialized form,
details of changes in share capital during the quarter, and in principle approval obtained by the
issuer from all the stock exchanges where it is listed in respect of such further issued capital
under SEBI (Depositories and Participants) Regulations, 2018.
d. Concurrent Audit of Depository Participants:
Practising Company Secretary is authorized to carry out concurrent audit of Depository
Participants which covers audit of the process of demit account opening, control and verification
of Delivery Instruction Slips (DIS).

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CHAPTER 6 - CAPITAL MARKET INTERMEDIARIES

INTRODUCTION

Capital Market International are the people who help the corporate and the investors to enter
into various kinds of transactions in the capital market. They are the experts of various aspects
of capital market. For facilitating the transactions, capital market intermediaries charge the
professional fees.

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KINDS OF CAPITAL MARKET INTERMEDIARIES

Capital Market Intermediaries are classified as follows:

Primary Market Secondary Market
1) Merchant Bankers/Lead Managers 1. Stock-Brokers and Sub-Brokers
2) Registrar and Share Transfer Agents 2. Portfolio Managers
3) Bankers to an Issue 3. Custodian of Securities
4) Debenture Trustees 4. Investment Advisers
5. Research Analyst
6. Credit Rating Agency
7. Depository Participant
8. Foreign Portfolio Investor

REGISTRATION OF INTERMEDIARIES

Application for Registration: An application, for grant of a certificate to act as an intermediary,

has to be made to the Board in Form A of Schedule I with such additional information as
required to be provided under the relevant regulations, and the application fee, as specified in
the relevant regulations. The applicant seeking registration to act as a stock broker or sub-
broker or a trading member or a clearing member or a depository participant has to make the
application along with certain additional information through the stock exchange or through
the clearing corporation of which the applicant is a member or trading member or through the
depository in which the applicant proposes to act as a participant.

Process of Application: The stock exchange, the clearing corporation, the depository or the
specified self regulatory organization has to examine the eligibility of the applicant and forward
the application with the application fees to the Board along with its recommendation as early
as possible but not later than 30 days of receipt of the complete application with the specified
application fees.

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Note: Applicant or an intermediary may carry on the activities of one or more intermediaries
only if it obtains a separate certificate to carry on each such activity.

Additional Information: The Board may require the applicant to furnish further information or
clarifications, regarding matters relevant to the activity of such an intermediary or which may
otherwise be considered necessary by the Board, to consider and dispose of the application.

Rejection of Application: Any application for grant of certificate which is not complete in all
respects and does not conform to the requirements in Form A and the requirements specified
in the relevant regulation can be rejected by the Board for reasons to be recorded by the Board
in writing. However, the applicant has to be given an opportunity in writing to make good the
deficiencies within the time specified by the Board, for the purpose. The applicant cannot make
any application for grant of certificate under these regulations or any other regulations for a
period of 1 year from the date of such rejection.

Granting of Certificate: The Board on being satisfied that the applicant is eligible, has to
grant a certificate in the form specified in the relevant regulations and send an intimation to
the applicant.

Conditional Registration: Where a pending proceeding before the Board or any court or tribunal
may result in the suspension or cancellation of the certificate, the Board may give a conditional
registration.

Separate Certificate for other activity: When an intermediary, who has been granted a
certificate and who has filed Form A under these regulations, wishes to commence a new
activity which requires a separate certificate under the relevant regulations, it has to, while
seeking such certificate, not be required to file Form A, and has to furnish to the Board only
such additional information as is required under the relevant regulations.

Validity in case of change in status or constitution: Where the intermediary proposes to

change its status or constitution, it has to obtain prior approval of the Board for continuing to

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act as an intermediary, it has to pay the applicable fees and has to abide by the provisions of
the securities laws and it has to meet the eligibility criteria and other requirements specified.

Deemed Approval: A request for prior approval which is complete in all respects has to be
disposed off by the Board within a period of 60 days from the date of receipt of such request
and where the decision of the Board has not been communicated to the intermediary within
the said period of 60 days, the prior approval has to be deemed to have been granted.

Transfer of activities to another intermediary: Where an intermediary has failed to make an

application or where an existing intermediary has been refused grant of certificate under these
regulations, the intermediary has to forthwith cease to act as such intermediary, transfer its
activities to another intermediary which has been granted a certificate for carrying on such
activity and allow its clients or investors to withdraw or transfer their securities or funds held
in its custody without any additional cost.

Note: The certificate granted to an intermediary has to be permanent unless surrendered by

the intermediary or suspended or cancelled in accordance with these regulations.

Timelines for Registration (In Summary)

Activities Timelines
Fresh registration of Intermediaries 30 Days
Cancellation/surrender of registration. 30 Days
Prior approval for change in control of intermediary. 30 Days

MERCHANT BANKERS

Meaning
Merchant Banker means any person who is engaged in the business of issue management
either by making arrangements regarding selling, buying or subscribing to securities or acting
as manager, consultant, advisor or rendering corporate advisory services in relation to issue
management.

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Roles and Responsibilities

It is necessary for an issuer to appoint a merchant banker for:
(a) Managing of public issue of securities;
(b) Underwriting connected with the public issue management business;
(c) Managing/Advising on international offerings of debt/equity i.e. GDR, ADR, bonds and other
instruments;
(d) Private placement of securities;
(e) Primary or satellite dealership of government securities;
(f) Corporate advisory services related to securities market including takeovers, acquisition and
disinvestment;
(g) Stock broking;
(h) Advisory services for projects;
(i) Syndication of rupee term loans;
(j) International financial advisory services

Capital Adequacy Requirements

The Regulations prescribes that the capital adequacy requirement shall be a networth of not
less than five crore rupees.

SEBI (MERCHANT BANKERS) (AMENDMENT) REGULATIONS, 2021

The SEBI vide gazette notification dated 30th March, 2021 has issued the SEBI (Merchant
Bankers) (Amendment) Regulations, 2021.

The following new Definitions have been inserted in Regulation 2, namely–

(g) “Underwriter” means a person who engages in the business of underwriting of an issue of
securities of a body corporate.

(h) “Underwriting” means an agreement to subscribe to or procure subscription for securities,

issued or offered for sale, remaining unsubscribed.

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Agreement with clients as an Underwriter

The amendment provides that every merchant banker acting as an underwriter shall enter into
an agreement with each body corporate on whose behalf it is acting as an underwriter and the
said agreement shall, amongst other things, provide for the following, namely—
i. The period for which the agreement shall be in force;
ii. The allocation of duties and responsibilities between the underwriter and the client
iii. The amount of underwriting obligations;
iv. The period, within which the underwriter has to subscribe to the issue after being intimated
by or on behalf of such body corporate;
v. The amount of commission or brokerage payable to the underwriter;
vi. Details of arrangements, if any, made by the underwriter for fulfilling the underwriting
obligations.

General responsibilities of a merchant banker as an underwriter

1) A merchant banker acting as an underwriter shall not derive any direct or indirect benefit from
underwriting the issue other than the commission or brokerage payable under the agreement
for underwriting entered with client.
2) At any point of time, the total underwriting obligations under all the agreements shall not
exceed twenty times of the net worth of the merchant banker.
3) Every merchant banker acting as an underwriter, in the event of being called upon to subscribe
for securities of a body corporate pursuant to an agreement for underwriting, shall subscribe
to such securities within 45 days of the receipt of such intimation from such body corporate.

Additional Code of Conduct for Merchant Bankers

- A merchant banker or any of its directors, partners or manager having the management of the
whole or substantially the whole of affairs of the business, shall not either through its account
or their respective accounts or through their associates or family members, relatives or friends
indulge in any insider trading.
- A merchant banker acting as an underwriter shall not make any statement, either oral or
written, which would misrepresent— (a) the services that the underwriter is capable of

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performing for its client, or has rendered to any other issuer company; (b) his underwriting
commitment.
- A merchant banker acting as an underwriter shall not indulge in any unfair competition, which
is likely to be harmful to the interest of other entities acting as underwriters carrying on the
business of underwriting or likely to place such other underwriters in a disadvantageous position
in relation to the underwriter while competing for, or carrying out any assignment.

REGISTRARS AND SHARE TRANSFER AGENTS (RTA)

Introduction
The expression “Registrar and Share Transfer Agent (RTA)” is the combination of two
expressions, namely ‘Registrar to an Issue’ and ‘Share Transfer Agent’.

Registrar to an Issue is related to primary market whereas Share Transfer Agent is related to
secondary market. There are two categories of RTAs i.e., Category I, who acts both as the
Registrar to an Issue as well as the Share Transfer Agent and Category II, who acts either as
the Registrar to an Issue or as the Share Transfer Agent.

Definition of Registrar to an Issue

Registrar to an issue means a person authorized by a body corporate to carry on the following
activities on its behalf:
1) Collecting applications from investors in respect of an issue;
2) Keeping a proper record of applications and moneys received from investors;
3) Assisting body corporate in the following:
a) Determining the basis of allotment of securities;
b) Finalizing the list of persons entitled to allotment of securities; and
c) Processing and dispatching allotment letters and refund order.

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Definition of Share Transfer Agent

Share Transfer Agent means –
1) Any person who, on behalf of anybody corporate, maintains the records of holder of securities
issued by such body corporate and deals with all maters connected with the transfer or
redemption of its securities;
2) A department or division (by whatever name called of a body corporate performing the activities
specified in the above clause, if at any time the total number of the holder of its securities
issued exceed 1 lac.

Pre-issue Activities
- Sending instructions to Banks for reporting of collection figures and collection of applications.
- Providing inputs to the Lead Manager and Printers regarding the design of the Bid cum -
Application form.

Activities during the Issue

- Collection and Reporting of daily Collection figures.
- Collection of Data and Forms from Banks.
- Liaising with clients and Intermediaries to the Issue.

Post Issue Activities

- Data capturing & validation
- Reconciliation
- Provide Allotment Alternatives in consultation with Client / Merchant Banker and Stock
Exchanges
- Facilitating Listing
- Uploading of data to the Depositories for crediting of securities electronically
- Dispatch of Refund orders / Share Certificates / Credit Advise
- Periodic Report submission to Regulatory Authorities
- Reconciliation of Refund payments
- Attending to post issue Investor queries
- Web-based investor enquiry system for allotment / refund details Share Transfer Agent Services

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Capital Adequacy Requirements

It provides that it must have a net worth of a minimum of Rupees 50 Lacs for Category I RTA
and Rupees 25 Lacs for Category RTA. Here net worth means the sum of paid-up capital and
free reserves.

GENERAL OBLIGATIONS AND RESPONSIBILITIES

Every registrar to an issue and share transfer agent holding a certificate shall:
- at all times abide by the Code of Conduct.
- not to act as such registrar for any issue of securities in case he or it is an associate of the
body corporate issuing the securities.
- keep and maintain proper books of accounts and records.
- preserve the books of accounts and other records and documents maintained for a minimum
period of three years.
- appoint a compliance officer for monitoring the compliance of the Act, rules and regulations.

BANKERS TO AN ISSUE

Definition
Banker to an Issue means a scheduled bank (bank specified under the Schedule II to the
Reserve Bank of India Act, 1934) carrying on all or any of the following activities, namely:
1) Accepting applications and application money;
2) Acceptance of allotment and calls money;

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3) Refund of application moneys;

4) Payment of dividend or interest warrants.

GENERAL OBLIGATIONS AND RESPONSIBILITIES

Every banker to an issue shall
- maintain books of account, records and the documents.
- furnish the information to the SEBI when required.
- enter into an agreement with the body corporate for whom it is acting as banker to an issue.
- inform SEBI, if any disciplinary action is taken by the Reserve Bank against the banker to an
issue only in relation to issue payment work.
- abide by the code of conduct.
- appoint a compliance officer who shall be responsible for monitoring the compliance of the Act,
rules and regulations.

DEBENTURE TRUSTEE

Definition
Debenture Trustee means a trustee of a Trust Deed for securing any issue of debentures of a
body corporate. It may be noted that only the following persons can do the work of debenture
trustee:
a) A scheduled bank carrying on commercial activity;
b) A public financial institution
c) An insurance company; and
d) A body corporate.

Roles and Responsibilities

- Call for periodical reports from the body corporate, i.e., issuer of debentures.
- Take possession of trust property.
- Enforce security in the interest of the debenture holders.

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- Ensure on a continuous basis that the property charged to the debenture is

available and adequate at all times to discharge the interest and principal amount
payable.
- Exercise due diligence to ensure compliance with the provisions of the Companies Act, the
listing agreement or the trust deed.
- To take appropriate measures for protecting the interest of the debenture holders as
soon as any breach of the trust deed or law comes to his notice.
- To ascertain that the debentures have been converted or redeemed in
accordance with the provisions and conditions under which they are offered to the
debenture holders.

Capital Adequacy Requirements

The Regulations prescribes that the capital adequacy requirement shall be a networth of not
less than ten crore rupees.

STOCK BROKERS AND SUB-BROKERS

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Meaning and Concept of Stock Broker and Sub-broker

Stock Broker is a person registered with Stock Exchange as a member. He helps both the seller
and buyer of securities to enter into a transaction. If a stockbroker has order to buy and sell
same kind of securities he may complete the transaction between his clients concerned. Sub-
Broker is one who works along with Stock Broker and is not directly registered with Stock
Exchange as a member. However, he must be recognized by the Stock Exchange. He acts as
an agent of the Stock Broker.

GENERAL OBLIGATIONS AND RESPONSIBILITIES

Every Stock Broker shall
- keep and maintain the proper books of account, records and documents.
- preserve the books of account and other records maintained for a minimum period of five years.
- appoint a compliance officer who shall be responsible for monitoring the compliance of the Act,
rules and regulations.

SEBI (STOCK BROKERS) (AMENDMENT) REGULATIONS, 2021

The SEBI vide gazette notification dated 30th March, 2021 has issued the SEBI (Stock Brokers)
(Amendment) Regulations, 2021. The amendments inter-alia covers the following:

The following new Definitions have been inserted in Regulation 2, namely–

i) “Underwriter” means a person who engages in the business of underwriting of an issue of
securities of a body corporate.

j) “Underwriting” means an agreement to subscribe to or procure subscription for securities,

issued or offered for sale, remaining unsubscribed.

k) “issue” means an offer of sale or purchase of securities by any body corporate, or by any
other person or group of persons on its or his or their behalf, as the case may be, to or from
the public, or the holders of securities of such body corporate or person or group of persons
through a merchant banker.

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QUALIFIED STOCK BROKER

Qualified Stock Broker has been inserted which means a stock broker referred to in
regulation 18D of the SEBI (Stock Brokers) Regulations, 1992.

Enhanced obligations and responsibilities for qualified stock brokers (regulation 18D)
(1) The SEBI may designate a stock broker as a qualified stock broker having regard to its size
and scale of operations, likely impact on investors and securities market, as well as governance
and service standards, on the basis of the following parameters and the appropriate weightages
thereon: -
a) the total number of active clients;
b) the available total assets of clients with the stock broker;
c) the trading volumes of the stock broker;
d) the end of day margin obligations of all clients of a stock broker;
e) compliance score as may be specified by the Board;
f) grievance redressal score as may be specified by the Board; and
g) the proprietary trading volumes of the stock broker.

(2) The stock broker designated as a qualified stock broker shall be required to meet enhanced
obligations and discharge responsibilities to ensure: -
a) appropriate governance structure and processes;
b) appropriate risk management policy and processes;
c) scalable infrastructure and appropriate technical capacity;
d) framework for orderly winding down;
e) robust cyber security framework and processes; and
f) investor services including online complaint redressal mechanism.

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PORTFOLIO MANAGER

Meaning and Concept of Portfolio Manager

Portfolio means the total holdings of securities belonging to a person. Thus, Portfolio Manager
means a person who manages the total holdings of securities belonging to a person. He studies
the market and adjusts the investment mix for his client on a continuing basis to ensure
safety of investment and reasonable returns therefrom. The Portfolio Manager charges a fee
from the client for rendering portfolio management services and such fees shall be independent
of the return.

There are two types of Portfolio Managers:

1) Discretionary Portfolio Manager: He manages the funds of his client independently and with
full discretion in accordance with the needs of the client.
2) Non-discretionary Portfolio Manager: He manages the funds of his client without discretion
and in accordance with the instructions and directions of the client.

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Definition of Portfolio Manager

Portfolio Manager means any person who, pursuant to a contract or arrangement with a client,
advises, directs, or undertakes on behalf of the client the management or administration of
portfolio of securities or the funds of the clients, as the case may be.

Capital Adequacy Requirements

The Regulations prescribes that the capital adequacy requirement shall be a networth of not
less than five crore rupees.

GENERAL OBLIGATIONS AND RESPONSIBILITIES

Every portfolio manager shall:
- abide by the Code of Conduct.
- before taking up an assignment, enters into an agreement in writing with such client that
clearly defines the inter se relationship between them.
- The discretionary portfolio manager shall individually and independently manage the funds of
each client in accordance with the needs of the client whereas the non-discretionary portfolio
manager shall manage the funds in accordance with the directions of the client.
- not accept from the client, funds or securities worth less than fifty lakh rupees.
- act in a fiduciary capacity with regard to the client’s funds.
- segregate each client’s holding in securities in separate accounts.
- keep the funds of all clients in a separate account.
- transact in securities within the limitation placed by the client himself.
- not derive any direct or indirect benefit out of the client’s funds or securities.
- not borrow funds or securities on behalf of the client.
- not lend securities held on behalf of the clients to a third person except as provided under
SEBI (Portfolio Managers) Regulations, 2020.
- ensure proper and timely handling of complaints from his clients and take appropriate action
immediately.
- ensure that any person or entity involved in the distribution of its services is carrying out the
distribution activities in compliance with these regulations.

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CUSTODIAN OF SECURITIES

“custodial services” in relation to securities or goods of a client or gold or gold related

instruments or silver or silver related instruments held by a mutual fund or title deeds of
real estate assets held by a real estate mutual fund scheme in accordance with the Securities
and Exchange Board of India (Mutual Funds) Regulations, 1996 means, the safekeeping of such
securities or goods or gold or gold related instruments or silver or silver related instruments
or title deeds of real estate assets and providing services incidental thereto.

Following are the important functions of Custodian of Securities;

 maintaining accounts of securities of a client;
 collecting the benefits of rights accruing to the client in respect of securities
 keeping the client informed of the action taken or to be taken by the issuer of securities.

Capital Adequacy Requirements

The Regulations prescribes that the capital adequacy requirement shall be a networth of not
less than fifty crore rupees.

GENERAL OBLIGATIONS AND RESPONSIBILITIES

Every custodian shall
- abide by the Code of Conduct.
- separate and segregate its activity from all other activities.
- have adequate mechanisms for the purposes of reviewing, monitoring, evaluating and inspection
the custodian’s controls, systems, procedures and safeguards.
- not assign or delegate its functions as a custodian to any other person unless such person is
a custodian.
- open a separate custody account for each client, in the name of the client whose securities
are in its custody.
- enter into an agreement with each client on whose behalf it is acting as custodian.

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- have adequate internal controls to prevent any manipulation of records and documents including
audits for securities, goods and rights or entitlements arising from the securities and goods
held by it on behalf of its client.
- maintain the records and documents.
- appoint a compliance officer who shall be responsible for monitoring the compliance of the Act,
rules and regulations.
- -be the duly of the custodian to furnish such information within such reasonable period as the
SEBI may specify.

INVESTMENT ADVISER

Meaning
“Investment Adviser” means any person, who for consideration, is engaged in the business of
providing investment advice to clients or other persons or group of persons and includes any
person who holds out himself as an investment adviser, by whatever name called.

GENERAL OBLIGATIONS AND RESPONSIBILITIES

An investment adviser shall
- act in a fiduciary capacity towards its clients.
- not receive any consideration by way of remuneration or compensation or in any other form
from any person other than the client being advised.

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- maintain an arms-length relationship between its activities as an investment adviser.

- ensure that its investment advisory services are clearly segregated from all its other activities.
- ensure that in case of any conflict of interest of the investment advisory activities with other
activities.
- not divulge any confidential information about its client, which has come to its knowledge,
without taking prior permission of its clients, except where such disclosures are required to be
made in compliance.
- not enter into transactions on its own account which is contrary to its advice given to clients
for a period of fifteen days from the day of such advice.
- follow Know Your Client procedure as specified by the SEBI from time to time.
- abide by Code of Conduct.
- not act on its own account, knowingly to sell securities or investment products to or purchase
securities or investment product from a client.
- shall furnish to the SEBI information and reports as may be specified by the SEBI from time
to time.
- ensure that its representatives and partners, as applicable, comply with the certification and
qualification requirements at all times.

Capital Adequacy Requirements

Investment advisers who are non individuals shall have a net worth of not less than fifty lakh
rupees. Investment advisers who are individuals shall have net tangible assets of value not less
than five lakh rupees.

SEBI (RESEARCH ANALYST) REGULATIONS, 2014

SEBI (Research Analyst) Regulations, 2014, were notified by SEBI on 1st September, 2014 in
exercise of the powers conferred by section 30 of SEBI Act, 1992, SEBI made these regulations.

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Roles and Responsibilities

They study Companies and industries, analyse raw data, and make forecasts or
recommendations about whether to buy, hold or sell securities. They analyse information
to provide recommendations about investments in securities to their clients. Investors
often view analysts as experts and important sources of information about the securities
they review and often rely on their advice. There are basically three broad types of analysts,
viz. sell-side analysts, buy-side analysts and independent analysts.

Capital Adequacy Requirements

Regulation 8 prescribes the capital adequacy requirement:-
(1) of research analyst who is body corporate or limited liability partnership firm shall have a net
worth of not less than twenty five lakh rupees.
(2) of research analyst who is individual or partnership firm shall have net tangible assets of value
not less than one lakh rupees.

GENERAL OBLIGATIONS AND RESPONSIBILITIES

Research analyst or research entity shall
- maintain an arms-length relationship between its research activity and other activities.
- abide by Code of Conduct.
- furnish to the SEBI information and reports as may be specified by the SEBI from time to
time.
- ensure that its employees or partners comply with the certification and qualification
requirements at all times.
- maintain the records: (i) research report duly signed and dated; (ii) research recommendation
provided; (iii) rationale for arriving at research recommendation; (iv) record of public
appearance.
- ensure that all records shall be maintained either in physical or electronic form and preserved
for a minimum period of five years.
- conduct annual audit in respect of compliance with these regulations from a CA/CS.

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- Research analyst or research entity which is a body corporate or limited liability partnership
firm shall appoint a compliance officer who shall be responsible for monitoring the compliance
of the provisions of the Act, these regulations and circulars issued by the SEBI.

CREDIT RATING AGENCIES

“Credit rating agency” means a body corporate which is engaged in, or proposes to be
engaged in, the business of rating of securities offered by way of public or rights issue.

Roles and Responsibilities

- Credit rating is extremely important as it not only plays a role in investor
protection but also benefits industry as a whole in terms of direct mobilization of savings
from individuals.
- Rating also provide a marketing tool to the company and its investment bankers in placing
company’s debt obligations with an investor base that is aware of, and comfortable
with, the level of risk.
- Ratings also encourage discipline amongst corporate borrowers to improve their financial
structure and operating risks to obtain a better rating for their debt obligations
and thereby lower the cost of borrowing.

Capital Adequacy requirements

Minimum net worth of Rs. 25 crores

GENERAL OBLIGATIONS AND RESPONSIBILITIES

Every credit rating agency shall
- abide by the Code of Conduct.
- enter into a written agreement with each client whose securities it proposes to rate.
- during the lifetime of securities rated by it continuously monitor the rating of such securities.
- disseminate information regarding newly assigned ratings, and changes in earlier rating promptly
through press releases and websites, and, in the case of securities issued by listed companies,

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such information shall also be provided simultaneously to the concerned regional stock exchange
and to all the stock exchanges where the said securities are listed.
- disclose Rating Definitions and Rationale.
- Where any information is called for by the SEBI from a credit rating agency for the purposes
of these regulations, including any report relating to its activities, the credit rating agency shall
furnish such information to the SEBI.
- comply with such guidelines, directives, circulars and instructions as may be issued by the SEBI
from time to time,
- appoint a compliance officer who shall be responsible for monitoring the compliance of the Act,
rules and regulations.
- keep and maintain books of accounts, records and documents for a minimum period of five
years.

DEPOSITORY PARTICIPANT

A DP is an agent of the depository through which it interfaces with the investor

and provides depository services.

Roles and Responsibilities

Depository Participant (DP) is described as an Agent (law) of the depository. They
are the intermediaries between the depository and the investors. They execute pledge
requests and off market transfers and on market transfer request of the investors who
hold shares in demat form. Further transmission requests of investors shall also be handled.
Demat/Remat requests also handled in consultation with RTI/STAs.

Capital Adequacy requirements

Not less than Rs. one hundred crores.

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SEBI (DEPOSITORIES AND PARTICIPATIONS) (AMENDMENT) REGULATIONS, 2022

Effective from 23 February 2022
SEBI has increased the net worth requirements for stock broker to register as a depository
participant and provides that the stock broker shall have a net worth of rupees three crores
(within one year of the date of this notification), which shall be increased to rupees five crores
(within two years of the date of this notification). A self-clearing member fulfilling the net
worth requirements shall also be eligible to register as a depository participant.

FOREIGN PORTFOLIO INVESTOR

“Foreign Portfolio Investor” means a person who has been registered under Chapter II of
Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019 and
shall be deemed to be an intermediary in terms of the provisions of the SEBI Act, 1992.

GENERAL OBLIGATIONS AND RESPONSIBILITIES

(a) A foreign portfolio investor shall, at all times, abide by the code of conduct.
(b) Comply with the provisions of these regulations;
(c) Forthwith inform the SEBI and designated depository participant in writing, if any information
or particulars previously submitted to the SEBI or designated depository participant are found
to be false or misleading, in any material respect
(d) Forthwith inform the SEBI and designated depository participant in writing, if there is any
material change in the information including any direct or indirect change in its structure or
ownership or control, previously furnished by him to the SEBI or designated depository
participant;
(e) As and when required by the SEBI or any other Government agency in India, submit any
information, record or documents in relation to its activities as a foreign portfolio investor;
(f) Forthwith inform the SEBI and the designated depository participant, in case of any penalty,
pending litigation or proceedings, findings of inspections or investigations for which action may
have been taken or is in the process of being taken by an overseas regulator against it;
(g) Obtain a Permanent Account Number from the Income Tax Department;

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(h) In relation to its activities as foreign portfolio investor, at all times, subject itself to the extant
Indian laws, rules, regulations, guidelines and circulars issued from time to time;
(i) Be a fit and proper person;
(j) Undertake necessary KYC on its shareholders/investors in accordance with the rules applicable
to it in the jurisdiction where it is organised; provide any additional information or documents
including beneficiary ownership details of their clients as may be required by the designated
depository participant or the SEBI or any other enforcement agency to ensure compliance with
the Prevention of Money Laundering Act, 2002 and the rules and regulations specified
thereunder, the Financial Action Task Force standards and circulars issued from time to time
by the SEBI; and
(k) Ensure that securities held by foreign portfolio investors are free from all encumbrances.

SEBI (FOREIGN PORTFOLIO INVESTORS) (AMENDMENT) REGULATIONS, 2023

1. For grant of certificate as a foreign portfolio investor an application to be made to Designated

Depository Participants (“DDP”) in the form specified by the government or SEBI, along with
the fee specified.

2. General obligations and responsibilities of foreign portfolio investors, has following amendments:
a. The foreign portfolio investor shall as soon as possible but not later than seven working days,
inform the Board and DDP in writing, if any information or particulars previously submitted to
the Board or DDP are found to be false or misleading, in any material respect.
b. As soon as possible but not later than seven working days, inform the Board and DDP in
writing, if there is any material change in the information including any direct or indirect
change in its structure or ownership or control or investor group previously furnished by him to
the Board or DDP.
c. As soon as possible but not later than seven working days, inform the Board and the DDP, in
case of any penalty, pending litigation or proceedings, findings of inspections or investigations
for which action may have been taken or is in the process of being taken by an overseas
regulator against it.

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d. Ensure that accurate details regarding its investor group are maintained with its DDP at all
times.

INTERNAL AUDIT OF INTERMEDIARIES BY COMPANY SECRETARY IN PRACTICE

Being an important link between regulators, investors and issuers, they are expected to ensure
that their internal controls are so efficient that ensure effective investor service at all times
and provide regulators comfort as to the compliance of regulatory prescription.

In this direction, SEBI has authorised Practising Company Secretaries to undertake internal
audit of various capital market intermediaries and issue quarterly certificate with respect to
reconciliation of share capital audit.

1. Internal Audit of Portfolio Managers: Practicing Company Secretary is authorized for

conducting the internal audit of Portfolio Manager. The report is to be submitted twice a year,
as on 31st of March and 30th of September. The scope of internal audit comprises the checking
of compliance of SEBI (Portfolio Managers) Rules, 1993, SEBI (Portfolio Managers) Regulations,
1993 issued by SEBI.

2. Internal Audit of Stock Brokers / Trading Members / Clearing Members: Practicing Company
Secretary is authorized to carry out Internal Audit of Stock Brokers/Trading Members/Clearing
Members on a half yearly basis. The scope of internal audit of stock brokers, being wide enough,
covers the existence, scope and efficiency of the internal control system, compliance with the
provisions of the SEBI Act, 1992, Securities Contracts (Regulation) Act, 1956, SEBI (Stock
Brokers) Regulations, 1992, circulars issued by SEBI, agreements, KYC requirements, Bye Laws
of the Exchanges, data security and insurance in respect of the operations of stock
brokers/clearing members.

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3. Internal Audit for Credit Rating Agencies (CRAs): Half yearly audit report to be submitted
within two months of the half year end. It shall cover all aspects of CRA operations and
procedures, including investor grievance redressal mechanism, compliance with the requirements
stipulated in the SEBI Act, Rules and Regulations made thereunder, and guidelines issued by
SEBI.

4. Compliance audit of an investment adviser: Yearly audit in order to check the whether
Requirements of Regulation 19 of the SEBI (Investment Advisers) Regulations, 2013 are
complied with respects to the records to be maintained.

5. Annual audit of Research analyst or research entity: Yearly audit in order to check the
whether Requirements of SEBI (Research Analysts) Regulations, 2014 are complied with
respects to the records to be maintained.

6. Internal Audit of Registrar and Share Transfer Agent (RTA): All RTAs are required to carry
out internal audit on annual basis by independent qualified Company Secretaries who don’t
have any conflict of interest. The audit shall cover all aspects of RTA operations including
investor grievance redressal mechanism and compliance with the requirements stipulated in the
SEBI Act, Rules and Regulations made thereunder. The scope of the audit shall cover all issues
concerning the functioning of RTAs.

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CHAPTER 7 – INTERNATIONAL FINANCIAL SERVICES AUTHORITY

(IFSC
INTERNATIONAL FINANCIAL SERVICES CENTRE (IFSC)

1. Financial Services Centres those which cater to customers outside their own jurisdiction are
referred to as International Financial Services Centres (IFSCs).
2. International financial services (IFS) deal with the flow of finance and financial products and
services such as raising of funds such as debt and equity, risk management, mutual funds and
pension funds, asset management done by insurance companies, corporate treasury management
operations among others.
3. An IFSC has financial institutions such as Banks, Stock Markets & related entities, Insurance
firms, Fund Managers, FinTech firms, etc., which offer specialized financial services to non-
residents and residents, in an environment that promotes financial innovation and facilitates
cross border transactions.

IMPORTANCE OF IFSCs
Globally, IFSCs have assumed prominence in the financial services ecosystem primarily because
of three reasons:
1. They have contributed enormously to the growth of international financial transactions.
2. These centres have played an important role in accelerating the pace of financial globalization.
3. These centres have played an invaluable role in accelerating the socio-economic growth of host
countries.

The Percy Mistry committee report in 2007 highlighted the need for setting up an IFSC in
India to bring back the financial services and transactions that are currently carried out in
offshore financial centres by Indian corporate entities to a centre which is physically on Indian
soil.

Further, the IFSC has been designed as a special international financial jurisdiction by virtue
of Foreign Exchange Management Act, 2002 (“FEMA”). Under this, the units in IFSC enjoy
the benefits of a non-resident under exchange control provisions. While capital control

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restrictions are applicable in domestic India, the same restrictions are not applicable in the
IFSC jurisdiction.

FISCAL BENEFITS AND TAX EXEMPTIONS FOR GIFT- IFSC

The major tax benefits in an IFSC are summarized below: -

Taxes & Duties Benefits for Units in IFSC Benefits for Investors
Income-tax a) 100% tax exemption for 10 (a) Interest income paid to non-
consecutive years out of 15 residents on:-
years (i) Monies lent to IFSC units not
b) IFSC Unit has the flexibility to taxable
select any 10 years out of 15 (ii) Long Term Bonds and Rupee
years block Denominated Bonds listed on
c) MAT / AMT @ 9% of book IFSC exchanges taxable at
profits applies to Company / lower rate of 4%.
others setup as a unit in IFSC (b) Transfer of specified
- MAT not applicable to securities* listed on IFSC
companies in IFSC opting for exchanges by a non-resident not
new tax regime. treated as transfer - Gains
d) Dividend paid to shareholders accruing thereon not chargeable to
of company in IFSC tax in India.
 From 01 April 2020, dividend
income distributed by Company
in IFSC to be taxed in the
hands of the shareholder.
Goods and a) No GST on services – No GST on transactions carried out
Services Tax (i) received by unit in IFSC; in IFSC exchanges.
(GST) (ii) provided to IFSC / SEZ units,
Offshore clients.

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b) GST applicable on services

provided to Domestic Tariff
Area.
Other taxes State Subsidies – Lease rental, PF Exemption from Securities
duties contribution, electricity charges. Transaction Tax, Commodity
Transaction Tax, stamp duty in
respect of transactions carried out
on IFSC exchanges.

Following taxes are at NIL rates: -

(i) Security Transaction Tax (STT)
(ii) Commodity Transaction Tax (CTT)
(iii) Dividend Distribution Tax (DDT)
(iv) Long Term Capital Gain (LTCG)
(v) Short Term Capital Gain (STCG)

NECESSITY OF IFSC FOR DOMESTIC ECONOMY

1. Onshoring the offshore international financial services:

India had been heavily relying on overseas financial centres for the purchase of international
financial services. Therefore, GIFT-IFSC was set up to transform India from being an importer
of international financial services to becoming self-sufficient as well as an exporter of
international financial services. Thus, the vision was of onshoring the offshore international
financial services.

2. India’s economic growth trajectory:

Services offered in an IFSC, including Banking, Asset Management, Insurance and Capital
Markets attract huge amounts of global capital inflows, such inflows can be channelized for
the social economic development of India as well as to meet the Sustainable Development
Goals - 2030. Therefore, the development of an IFSC was an imperative step in India’s economic
growth trajectory. Another driving force for setting up an IFSC within the country was to allow

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bright young Indian talent to fully exhibit & showcase their talent and expertise, who had to
travel and work in overseas financial centres.

IFSC BENEFITS FOR INDIA

The establishment of GIFT-IFSC will boost the growth of country and GIFT-IFSC is an
important gateway to connect India with global opportunities. The benefits of having an IFSC
is in India are summarized below -
1. Internationalisation of rupee
2. Gateway for inbound and outbound capital flows
3. Employment generation
4. Regional financial integration
5. Development of niche areas
6. Innovation in financial services

INTERNATIONAL FINANCIAL SERVICES CENTRE AUTHORITY

1. Government of India through the International Financial Services Centres Authority Act, 2019
established the International Financial Services Centres Authority (IFSCA) as a dedicated and
unified financial regulator for IFSCs in India.
2. The IFSCA has been statutorily empowered to develop and regulate the financial markets in
the IFSCs in India.
3. The Act empowers IFSCA to exercise powers of four domestic regulators ie RBI, SEBI, IRDAI
& PFRDA for development and regulation of financial products, financial institutions and
financial services within the IFSCs.
4. IFSCA can perform all such quasi-legislative, executive, and quasi-judicial functions in IFSCs.
5. To develop the IFSC, the Authority has adopted a multi-pronged and calibrated approach which
inter alia, includes creating an internationally aligned regulatory framework across all business
verticals such as Banking, Capital Markets, Fund Management, Insurance, etc.
6. The authority is working to onshore new and niche international financial services. The niche
financial services include International Bullion Exchange, Aircraft Leasing and Finance, Courses
offered in Financial Management, Fin-Tech, Science, Technology, Engineering and Mathematics

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by foreign universities or foreign institutions, Ship Leasing and Financing, FinTech related
services, etc.
7. The Authority has been proactively working with multiple stakeholders to facilitate ease of
doing business for the global and domestic financial services industry operating from GIFT
IFSC.
8. The IFSCA is a unique Authority which has been vested with a dual mandate of developing
and regulating the IFSCs in India.

FUNCTIONS OF IFSCA

1) IFSCA Act empowers the Authority to develop and regulate the financial products, financial
services and financial institutions in an IFSC independently.
2) The authority can take all developmental steps such as authorizing the service providers who
aid in assisting the financial service providers, which are an important pillar in providing support
services for the entities to function effectively and to build a supporting ecosystem around for
the entities in IFSC.
3) The role of the Authority has broadened as it regulates Bullion exchange, Foreign Universities
and Institutions, Aircraft leasing, Ancillary service providers, Finance Companies and Fintech
entities, etc. These services are either not regulated in the domestic sector or are not regulated
as a financial service, like in the IFSC.
4) IFSC can also be perceived as a laboratory for financial experimentation which would enable
the government to experiment with new financial services and based on their adoption and risk
perception can be replicated in the domestic economy.
5) IFSCA as a unified regulator exercises control over all the financial services and hence is
equipped to provide better oversight on these new generation initiatives.

POWERS OF IFSCA

1. All powers exercisable by an appropriate regulator specified in First Schedule of the IFSCA Act,
2019 under respective acts, in an IFSC shall be exercised by the IFSCA, in so for as it relates
to financial products, financial services and financial institutions. This is a unique

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experimentation wherein the legislature instead of enumerating various powers of IFSCA has
incorporated all the powers of domestic sector financial regulators by simple reference.
2. Central Government has powers to amend the First Schedule by including or omitting any
financial sector regulator and the law administered by it, through notification.

The Regulators and respective Acts mentioned under First Schedule are as follows:

FIRST SCHEDULE
SR DOMESTIC STATUTE ADMINISTERED
NO REGULATOR
1. The Reserve Bank of 1. The Reserve Bank of India Act, 1934;
India constituted 2. The Banking Regulation Act, 1949;
under the Reserve 3. The Deposit Insurance and Credit Guarantee
Bank of India Act, Corporation Act, 1961;
1934 (2 of 1934). 4. The Foreign Exchange Management Act, 1999;
5. The Credit Information Companies (Regulation) Act,
2005;
6. The Government Securities Act, 2006;
7. The Payment and Settlement Systems Act, 2007.
2. SEBI established 1. The Securities Contracts (Regulation) Act, 1956 (42
under the Securities of 1956);
and Exchange Board 2. The Securities and Exchange Board of Act, 1992 (15
of India. of 1992);
3. The Depositories Act, 1996 (22 of 1996).
3. IRDA constituted 1. The Insurance Act, 1938 (4 of 1938);
under the Insurance 2. The General Insurance Business Insurance Regulatory
Regulatory and and (Nationalization) Act, 1972;
Development 3. The Insurance Regulatory and Development Authority
Authority Act, 1999 Act, 1999 (41 of 1999).
(41 of 1999).

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4. PFRDA constituted The Pension Fund Regulatory and Development Authority Act,
under the Pension 2013.
Fund Regulatory and
Development
Authority Act, 2013
(23 of 2013).

FINANCIAL PRODUCTS AND FINANCIAL SERVICES

FINANCIAL PRODUCTS
Section 3(1)(d) of the IFSCA Act defines “Financial product” as-
(i) Securities;
(ii) Contracts of insurance;
(iii) Deposits;
(iv) Credit arrangements;
E.g., Trade Financing Services is one such activity which comes under Credit arrangements.
(v) Foreign currency contracts other than contracts to exchange one currency for another that are
to be settled immediately; and
(vi) Any other product or instrument that may be notified by the Central Government from time
to time.

NEW FINANCIAL PRODUCTS

(i) Aircraft lease including operating and financial lease and any hybrid of operating and financial
lease of aircraft or helicopter and engines of aircraft or helicopter or any other part thereof;
The Government of India (GOI) vide Gazette notification dated October 06, 2020, notified
aircraft operating lease as a financial product.
(ii) Bullion spot delivery contract;
(iii) Bullion depository receipt with underlying bullion;

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GOI notified bullion spot trading and bullion depository receipts (BDR) with underlying bullion,
as financial products and bullion related services as financial services respectively on August
31, 2020.
(iv) Operating lease including any hybrid of operating and financial lease of such product or
equipment as financial product. Under this, IFSCA has been empowered to bring framework for
products such as ship leasing and other equipment;
In view of the Authority’s assessment of a huge potential for operating lease of ships and for
various other equipments in the IFSC, the Government of India vide notification dated December
14, 2021, notified operating lease including any hybrid of operating and financial lease of such
product or equipment, as specified by the Authority, as a financial product;
(v) Ship lease including operating lease, and hybrid of operating and financial lease, of a ship or
ocean vessel, engines of ship or ocean vessel, or any other part thereof, as a financial product.

FINANCIAL SERVICES
Section 3(1)(e) of the IFSCA Act defines “Financial service” as
(i) Buying, selling, or subscribing to a financial product or agreeing to do so;
(ii) Acceptance of deposits;
(iii) Safeguarding and administering assets consisting of financial products, belonging to another
person, or agreeing to do so;
(iv) Effecting contracts of insurance;
(v) Offering, managing or agreeing to manage assets consisting of financial products belonging to
another person;
(vi) Exercising any right associated with a financial product or financial service;
(vii) Establishing or operating an investment scheme;
(viii) Maintaining or transferring records of ownership of a financial product;
(ix) Underwriting the issuance or subscription of a financial product;
(x) Providing information about a person’s financial standing or creditworthiness;
e.g., Credit Information Companies, Credit rating agencies.
(xi) Selling, providing, or issuing stored value or payment instruments or providing payment services;

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(xii) Making arrangements for carrying on any of the services in sub-clauses (i) to (xi); (under
this a framework on Ancillary Services was issued, which provides for support services such as
Auditing, Accounting, Taxation and Assets Management);
(xiii) Rendering or agreeing to render advice on or soliciting for the purposes of—
(a) buying, selling, or subscribing to, a financial product; or
(b) availing any of the services in sub-clauses (i) to (xi); or
(c) exercising any right associated with a financial product or any of the services in clauses (i) to
(xi);
(xiv) Any other service that may be notified by the Central Government from time to time.

The framework allows the following permissible activities under ancillary services:
(a) Legal, Compliance and Secretarial;
(b) Auditing, Accounting, Bookkeeping and Taxation Services;
(c) Professional & Management Consulting Services;
(d) Administration, Assets Management Support Services and Trusteeship Services;
(e) Any other services as approved by IFSCA from time to time.
Under the said framework more than 34 Ancillary Services firms have been authorized by
IFSCA as of now.

NEW FINANCIAL SERVICES

(i) Global in-House Centres (GIC), as financial service to provide services relating to financial
products and financial services;
(ii) Trading in bullion depository receipts with underlying bullion in relation to bullion spot delivery
contracts;
(iii) Provision of bullion financing, bullion-based loans, bullion loans against collateral, bullion
vaulting, clearing and settlement services in relation to bullion spot delivery contracts and
bullion depository receipts;
(iv) Courses offered in Financial Management, Fin-Tech, Science, Technology, Engineering and
Mathematics by foreign universities or foreign institutions in IFSC.

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LISTING AND TRADING OF SECURITIES IN IFSC

In Globalized world, Global capital acts as an important driver of economic growth and
development. The setting up of the IFSC in India is aimed at tapping global capital flows to
meet India’s development needs and simultaneously provide international issuers a globally
competitive financial platform for the full range of international financial services.

Section 23 (3) of the Companies Act, 2013 has been notified on September 28, 2020, enabling
listing of equity shares of public Indian companies in permissible foreign jurisdictions, including
IFSC. Previously, the listing of equity in IFSC by companies incorporated in India and foreign
jurisdiction is regulated by a combination of SEBI (IFSC) Guidelines, 2015, relevant provisions
of SEBI (Issue of Capital and Disclosure requirements) Regulations, 2018, Companies Act, 2013
and Foreign currency depository receipt scheme and circulars issued thereunder.

IFSCA, in its endeavor to develop a comprehensive and consistent regulatory framework based
on global best practices with a special focus on ease of doing business, enacted an all-
encompassing framework to facilitate issuers to access world’s capital markets. Through a
cross-border listing, a company can reach beyond its home jurisdiction to identify a foreign
stock exchange that meets its particular corporate financing needs. In order to provide an
ecosystem for Fintech companies, IFSCA enabled the listing of startups in IFSC. Further,
considering the recent innovative methods for raising of capital are being used by companies
in some jurisdictions, such as by Special Purpose Acquisition Companies (SPACs), IFSCA enabled
the listing of SPAC on the recognised stock exchanges, in order to facilitate sponsors, raise
capital to undertake an acquisition of a company or assets.

The countries worldwide are investing into Environment, Social, Governance (ESG) projects,
pursuant to the Paris Agreement and Sustainable Development Goals. The financial sector has
been identified as being instrumental in advancing the zero-carbon energy transition.
Considering the importance of Environment, Social and Governance issues and the ESG targets,
there is a need for the regulators to provide an ecosystem for sustainable financing. IFSCA
aims to move towards becoming a prominent international centre for sustainable finance,

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supporting the needs for ESG financing. Towards this direction, IFSCA has enabled the listing
of green bonds, social bonds, sustainable bonds and sustainability linked bonds.

LISTING OF SECURITIES
(a) The IFSCA (Issuance and Listing of Securities) Regulations, 2021 (“Listing Regulations”)
enables the following types of listing:
(i) an initial public offer of specified securities by an unlisted issuer;
(ii) a follow-on public offer of specified securities by a listed issuer;
(iii) Listing of specified securities by a start-up company or a SME;
(iv) Secondary listing;
(v) An initial public offer of specified securities by a SPAC;
(vi) Listing of depository receipts;
(vii) Listing of debt securities (including SMART City bonds); and
(viii) Listing of ESG focused debt securities
(b) The following entities would be eligible for listing of securities on the recognised stock
exchanges in IFSC:
(i) A company incorporated in an IFSC;
(ii) A company incorporated in India; and
(iii) A company incorporated in a foreign jurisdiction
(c) Further, in respect of listing of debt securities, the following entities are also eligible to list on
the recognised stock exchanges in IFSC:
(i) any supranational, multilateral or statutory organisation/ institution/agency provided such
organization/institution/agency is permitted to issue securities as per its constitution; and
(ii) any municipality or any Statutory Body or Board or corporation, Authority, Trust or Agency
established or notified by any Central or State Act or any Special Purpose Vehicle notified by
the State Government or Central Government including for the purpose of raising fund by the
issuer to develop SMART city;
(iii) An entity whose securities are irrevocably guaranteed by a Sovereign (India or a Foreign
Jurisdiction).

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LISTING OF SPECIFIED SECURITIES THROUGH IPO (INCLUDING OFFER FOR SALE)

A. Eligibility:
An issuer shall be eligible to make an initial public offer only if:
(i) the issuer has an average pre-tax profit, based on consolidated audited accounts, of at least
USD 1 million during the preceding three financial years; or
(ii) the issuer has an operating revenue of at least USD 20 million in the preceding financial year;
or
(iii) any other eligibility criteria that may be prescribed by IFSCA.

B. Issue size:
The issue size shall not be less than USD 15 million or any other amount as may be specified
by IFSCA from time to time.

C. Minimum subscription:
The minimum number of subscribers should be 200 and at least 75% of the offer size should
be subscribed for the offer to be successful.

D. Lock-up:
The pre-issue shareholding shall be locked-up for a period of 180 days from the date of
allotment in the initial public offer.

LISTING OF START-UP AND SMALL AND MEDIUM SIZED ENTERPRISE (SME) COMPANIES
The start-up fulfilling the following criteria shall be eligible to list on the recognised stock
exchanges in IFSC:
(a) Less than 10 years from the date of incorporation;
(b) The turnover of the company for any of the financial years since incorporation should not have
exceeded USD 20 million.
(c) The company is working towards innovation, development or improvement of products or
processes or services, or it is a scalable business model with a high potential of employment
generation or wealth creation.

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The SME Companies, as defined in their respective home jurisdiction, shall be eligible to list
on specified securities on a recognised stock exchange.

The salient features for the framework for listing of start-up and SME companies are as
follows:
(a) Direct Listing: The start-ups and SMEs are also permitted to list on the recognised stock
exchanges in IFSC without public offer. This would encourage start-ups (including Fintech
companies) to list in IFSC and would be a step towards developing IFSC as a hub for Fintech
companies.
(b) Offer size in case of public offer: Not less than USD 2 million or any other amount as may
be specified by IFSCA from time to time.
(c) Minimum subscription: The minimum number of subscribers should be 50 and at least 75%
of the offer size should be subscribed for the offer to be successful.

LISTING OF SPAC
A SPAC shall be eligible to raise capital through IPO of specified securities on the recognised
stock exchanges in IFSC, only if:
(a) Offer size: Not less than USD 50 million or any other amount as may be specified by the
Authority from time to time.
Further, the sponsor shall hold at least 20% of the post issue paid up capital.
(b) Minimum application size: The minimum application size in an initial public offer of SPAC
shall be USD 250,000.
(c) Minimum subscription: At least 75% of the offer size.
(d) SPAC specific obligations: Requirements have also been prescribed with respect to
maintenance of escrow account, eligible investments pending utilisation, acquisition timeline of
3 years extendable upto 1 year, right of dissenting shareholders, liquidation provisions, etc.

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LISTING OF DEBT SECURITIES

(a) Debt securities issued by issuers incorporated in IFSC;
(b) Debt securities issued by issuers incorporated in India or foreign jurisdiction in any currency
other than INR;
(c) Masala Bonds;
(d) Any other debt securities as permitted by relevant authority from time to time.

SEBI (IFSC) GUIDELINES, 2015

The SEBI (IFSC) Guidelines, 2015 provides a comprehensive regulatory framework for Market
Infrastructure Institutions (MII) such as Stock exchanges, Clearing corporation, Depositories.

Eligibility and shareholding:

1) Eligibility and shareholding limit for stock exchanges desirous of operating in IFSC:
Any Indian recognised stock exchange or any stock recognised exchange of a foreign jurisdiction
may form a subsidiary to provide the services of stock exchange in IFSC wherein at least fifty-
one per cent of paid-up equity share capital shall be held by such stock exchange and the
remaining share capital shall be held by the following:
(i) any other stock exchange,
(ii) a depository,
(iii) a banking company,
(iv) an insurance company,
(v) commodity derivatives exchange, whether Indian or of foreign jurisdiction, and
(vi) a public financial institution of Indian jurisdiction.
However, any one of the aforesaid entities may acquire or hold, either directly or indirectly,
either individually or together with persons acting in concert, up to fifteen per cent of the
paid-up equity share capital of such stock exchange.

2) Eligibility and shareholding limit for clearing corporations desirous of operating in IFSC:
Any Indian recognised stock exchange or clearing corporation, or any recognised stock exchange
or clearing corporation of a foreign jurisdiction shall form a subsidiary to provide the services
of clearing corporation in IFSC wherein at least fifty-one per cent of paid-up equity share

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capital shall be held by such stock exchange or clearing corporation, and remaining share capital
shall be held by the following:
(i) any other stock exchange
(ii) a clearing corporation,
(iii) a depository,
(iv) a banking company,
(v) an insurance company, whether Indian or foreign jurisdiction, and
(vi) a public financial institution of Indian jurisdiction.

However, any one of the aforesaid entities may acquire or hold, either directly or indirectly,
either individually or together with persons acting in concert, up to fifteen per cent. of the
paid-up equity share capital of such clearing corporation.

3) Eligibility and shareholding limit for foreign depositories desirous of operating in IFSC:
(a) Any regulated depository of a foreign jurisdiction shall form a subsidiary to provide the
depository services in IFSC where atleast fifty-one per cent of paid-up capital is held by such
depository or recognised stock exchange or clearing corporation, whether Indian or of foreign
jurisdiction.
(b) Setting up of IFSC Depositories Services by Indian registered depositories: Any Indian registered
depository may set up a branch – IFSC Depository Services (IDS) at IFSC. The interested
depositories shall be required to obtain prior approval of the Board for setting up an IDS. Such
Indian depository shall be required to ring fence its domestic operations, financially,
operationally, and technologically, from its operations at IFSC.

4) Permissible securities:
The stock exchanges operating in IFSC may permit dealing in following types of securities and
products in such securities in any currency other than Indian rupee, with a specified trading
lot size on their trading platform subject to prior approval of the SEBI:
(a) Equity shares of a company incorporated outside India;
(b) Depository receipt(s);
(c) Debt securities issued by eligible issuers;

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(d) Currency and interest rate derivatives;

(e) Index based derivatives;
(f) Commodity Derivatives;
(g) Derivatives on Equity shares;
(h) Such other securities as may be specified by the Board.

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CHAPTER 8 – ISSUE OF CAPITAL & DISCLOSURE REQUIREMENTS

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SEBI (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2018

METHODS OF RAISING FUNDS FROM PRIMARY MARKET

- PUBLIC ISSUE: When an offer is made to new investors (general public) for becoming
shareholders of the issuer Company it is called a public issue.

- Initial Public Offer (IPO): When an unlisted public company offers its securities for sale for
the first time to the General public, it is known as an IPO.

- Further Public Offer (FPO) or follow on offer: When a listed company offers a fresh issue
of securities to the general public for sale, it is known as a FPO.

- RIGHTS ISSUE: When a listed company offers or issues securities to the

existing shareholders on a particulars date fixed by the issuer company (i. e. record date), it
is called a rights issue. The rights issue is always issued at price not like bonus shares.

- BONUS ISSUE: When an issuer makes an issue of securities to its existing shareholders as on
a record date, without any consideration from them, it is called a bonus issue. The shares are
issue out of the Company‘s free reserve or share premium account in a particular ratio to the
number of securities held on a record date.

- PRIVATE PLACEMENT: When an issuer makes an issue of securities to a select group of persons
not exceeding 49%, and which is neither a rights issue nor a public issue, it is called a private
placement.
Private placement of shares or convertible securities by listed issuer can be of two types:
(i) Preferential Allotment: When a listed company issues shares or convertible securities,
to a select group of persons in terms of SEBI (ICDR) Regulations, 2018, it is called a
preferential allotment. The issuer is required to comply with various provisions which intern alia
include pricing, disclosures in notice etc., in additional to requirements specified in Companies
Act.

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(ii) Qualified Institutions Placement (QIP): When a listed Company issues equity shares or
securities convertible into equity shares to QIBs only, it is called a QIP.
(iii) Institutional Placement Programme (IPP): When a listed issuer makes a further public
offer of equity shares, or offer for sale of shares by promoter/ promoter group of
listed issuer in which, the offer allocation and allotment of such shares is made only to QIBs
in terms of SEB (ICDR) Regulations, 2018 for the purpose of achieving minimum public
shareholding it is called an IPP.

ALLOCATION OF NET OFFER TO PUBLIC

(1) In an issue made through the book building process the allocation in the net offer to public
category should be made as follows:
(a) not less than 35% to retail individual investors;
(b) not less than 15% to non-institutional investors;
(c) not more than 50% to qualified institutional buyers, five per cent of which shall be allocated
to mutual funds. However, in addition to five per cent allocation available, mutual funds shall
be eligible for allocation under the balance available for qualified institutional buyers.

In an issue made through the book building process and following the alternative eligibility
norms provided by SEBI for public issue, the allocation in the net offer to public category shall
be as follows:

(a) not more than 10% to retail individual investors;

(b) not more than 15% to non-institutional investors;
(c) not less than 75% to qualified institutional buyers, 5 % of which shall be allocated to mutual
funds. However, in addition to the 5% allocation available, mutual funds shall also be eligible
for allocation under the balance available for qualified institutional buyers.

In an issue made through book building process, the allocation in the non-institutional investors’
category shall be as follows:

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(a) 1/3rd of the portion available to non-institutional investors shall be reserved for applicants with
application size of more than Rs. 2 lakh and up to Rs. 10 lakh;
(b) 2/3rd of the portion available to non-institutional investors shall be reserved for applicants
with application size of more than Rs. 10 lakh.
Provided that the unsubscribed portion in either of the sub-categories specified in clauses (a)
or (b) may be allocated to applicants in the other sub-category of non-institutional investors.

ALTERNATIVE ENTRY/ELIGIBILITY NORMS FOR BOTH UNLISTED AS WELL AS LISTED

COMPANY [REG. 26(2)]

An unlisted company or a listed company, not satisfying the aforesaid conditions, shall be
eligible to make a public issue of shares, if the issue is made through book -building process,
with at least 75% (seventy-five percent) of the net offer to the public being allotted to
Qualified Institutional Buyers (QIBs).

PRICE AND PRICE BAND

For Book Building Process:

The issuer company has to announce price band in place of fixed price for the issue of securities.
The price band shall be included in the red herring prospectus of the Company.

For Other than Book Building Process:

The issuer company has to fix price of issue of securities before submitting prospectus
with the Registrar of Companies.
(1) The issuer company can mention a price in the draft prospectus (in case of a fixed price
issue) and floor price or price bank in the red herring prospectus (in case of a fixed built
issue) and determine the price at a later date before registering the prospectus with
the Registrar of Companies. However, the final prospectus registered with the Registrar of
Companies should contain only one price.
(2) The cap on the price band shall be less than or equal to 120% of the floor price.
(3) The floor price or the final price should not be less than the face value of the securities.

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(4) If the floor price or price band is not mentioned in the red herring prospectus, the issuer
company should announce the floor price or price band in all the newspapers in which the
pre - issue advertisement was released atleast 2 working days before the opening of the bid.
(5) The cap on the price band, and the coupon rate in case of convertible debt instruments, shall
be less than or equal to 120% of the floor price. Provided that the cap of the price band shall
be at least 105% of the floor price.

Draft Offer Document Red Herring Prospectus Offer Document

“Draft Offer document” “Red Herring Prospectus” is a “Offer document” means

means the offer document in prospectus, which does not Prospectus in case of a public
draft stage. The have details of either price or issue or offer for sale and
draft offer documents are filed number of shares being Letter of Offer in case of a
with SEBI, atleast 30 days offered, or the amount of right issue, which is filed with
prior to the filing of the Offer issue. This means that in case Registrar of Companies (ROC)
Document with ROC/SEs. price is not disclosed, the and Stock Exchanges. An offer
SEBI may specifies changes, if number of shares and the document covers all the
any, in the Draft Offer upper and lower price bands relevant information to help an
Document and the Issuer or are disclosed. In the case of investor to make his/ her
the Lead Merchant banker book-built issues, it is a investment decision.
shall carry out such changes in process of price discovery and
the draft offer document the price cannot be
before filing the Offer determined until the bidding
Document with ROC/SEs. The process is completed. Only on
Draft Offer document is completion of the bidding
available on the SEBI website process, the details of the final
for public comments for a price are included in the offer
period of 21 days from the document. The offer document
filing of the Draft Offer filed thereafter with ROC is
Document with SEBI. called a prospectus.

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ISSUE OPENING DATE

An IPO and an FPO shall be opened after at least 3 working days from the date of registering
the red herring prospectus in case of a book built issue or the prospectus in case of a fixed
price issue with the Registrar of Companies.

PERIOD OF SUBSCRIPTION

A public issue shall be kept open for at least three working days but not more than ten
working days including the days for which the issue is kept open in case of revision in price
band.

ENTRY / ELIGIBILITY NORMS

Unlisted Company
An unlisted company may make an initial public offering (IPO) of equity shares or any other
security which may be converted into or exchanged with equity shares at a later date, only if
it meets all the following conditions:
1. The company has net tangible assets of atleast Rs. 3 crores on a restated and consolidated
basis, in each of the preceding 3 full years (of 12 months each), of which not more than 50%
is held in monetary assets. However, if more than 50% of the net tangible assets are held in
monetary assets, the issuer has utilized or made firm commitments to utilize such excess
monetary assets in its business or project. This limit of 50% shall not apply in case of IPO is
made entirely through an offer for sale.
2. The company has average operating profit of at least Rs.15 crores, calculated on a restated and
consolidated basis, during the 3 most profitable years out of the immediately preceding three
years;
3. The company has a net worth of at least Rs. 1 crore in each of the preceding 3 full years (of
12 months each), calculated on a restated and consolidated basis;

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4. In case the company has changed its name within the last 1 year, at least 50% of the revenue
calculated on a restated and consolidated basis for the preceding 1 full year is earned by the
company from the activity suggested by the new name;

An issuer not satisfying the eligibility conditions shall be eligible to make an initial public offer
only if the issue is made through the book-building process and the issuer undertakes to allot
at least seventy five per cent of the net offer to qualified institutional buyers and to refund
the full subscription money, if it fails to do so.

Example
In case the issuer is proposing to file its draft offer document with the SEBI in August 2018,
then the net tangible assets for the last 3 full years of 12 months each shall be atleast Rs.3
crores and not more than 50% of the same shall be held in monetary assets. In the following
table, it is seen that the net tangible assets is more than Rs. 3 crores in the year ended
March 31, 2014, March 31, 2015 and March 31, 2016. Further monetary assets constitute less
than 50% of the net tangible assets in each of the three previous financial years:
(Rs. in lacs)

Year Ended March 31 2014 2015 2016 2017 2018

Net Tangible Assets 1448.56 2275.53 2532.60 3510.33 4657.50

Monetary Assets 292.76 61.97 108.25 302.33 288.17

Monetary Assets as a 20.21 2.72 4.27 8.61 6.19
percentage of
Net Tangible Assets

“Net Tangible Assets” mean the sum of all net assets of the issuer, excluding intangible assets
as defined in Accounting Standard 26 (AS 26) or Indian Accounting Standard (Ind AS) 38,
as applicable, issued by the Institute of Chartered Accountants of India.

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Example
In case the issuer proposes to file its draft offer document with the SEBI in August 2018,
then the average operating profit for three preceding years shall be atleast Rs 15 crores. Further,
the company shall have operating profit in each of the three years. The average of the profits
for the 3 preceding years is Rs.15.75 crores which is more than the prescribed average of Rs.15
crores.

Year Ended March 31 2016 2017 2018

Operating Profit 1630.31 1232.65 1864.63

GENERAL CONDITIONS

An issuer making an initial public offer shall ensure that:

a) it has made an application to one or more stock exchanges to seek an in-principle approval for
listing;
b) it has entered into an agreement with a depository for dematerialisation of the specified
securities;
c) all its specified securities held by the promoters are in dematerialised form prior to filing of
the offer document;
d) all its existing partly paid-up equity shares have either been fully paid-up or have been forfeited;
e) it has made firm arrangements of finance through verifiable means towards seventy five percent
of the stated means of finance for a specific project proposed to be funded from the issue
proceeds, excluding the amount to be raised through the proposed public issue or through
existing identifiable internal accruals.

An issuer making an IPO shall ensure that the amount for general corporate purposes and such
objects where the issuer company has not identified acquisition or investment target, as
mentioned in objects of the issue in the draft offer document and the offer document, shall
not exceed 35% of the amount being raised by the issuer.

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However, the amount raised for such objects where the issuer company has not identified
acquisition or investment target, as mentioned in objects of the issue in the draft offer
document and the offer document, shall not exceed 25% of the amount being raised by the
issuer.

Further, such limits shall not apply if the proposed acquisition or strategic investment object
has been identified and suitable specific disclosures about such acquisitions or investments are
made in the draft offer document and the offer document at the time of filing of offer
documents.

Explanation:
(i) “Project” means the object for which monies are proposed to be raised to cover the objects
of the issue.

(ii) Partnership Firms

In case of an issuer which had been a partnership firm or a limited liability partnership, the
track record of distributable profit of the partnership firm or the LLP shall be considered only
if the financial statements of the partnership business for the period during which the issuer
was a partnership firm conform to and are revised in the format prescribed for companies
under the Companies Act, 2013.

(iii) Spinning off of a division

In case of an issuer formed out of a division of an existing company, the track record of
distributable profits of the division spun-off shall be considered only if the requirements
regarding financial statements as provided for partnership firms and LLPs are complied with.

ENTITIES NOT ELIGIBLE TO MAKE AN IPO

An issuer shall not make an initial public offer:

a. If the issuer, any of its promoters, promoter group, selling shareholders are debarred from
accessing the capital market by the SEBI.

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b. If any of the promoters or directors of the issuer is a promoter or a director of any other
company which is debarred from accessing the capital market by the SEBI.
c. If the issuer or any of its promoters or directors is a wilful defaulter or a fraudulent borrower.
d. If any of the promoters or directors of the issuer is a fugitive offender.
e. If there are any outstanding convertible securities, which would entitle any person option to
receive equity shares of the issuer except ESOP or fully paid-up outstanding convertible
securities which are required to be converted on or before the date of filing of the Red Herring
Prospectus or the Prospectus.
Note: The restrictions under (a) and (b) above shall not apply to the persons or entities
mentioned therein, who were debarred in the past by the SEBI and the period of debarment
is already over as on the date of filing of the draft offer document with the SEBI.

ELIGIBILITY REQUIREMENTS FOR FPO

- An issuer may make an FPO if it has changed its name within the last one year and atleast
50% of the revenue in the preceding one full year has been earned from the activity suggested
by the new name.
- If an issuer does not satisfy the above-mentioned condition, it may make a FPO only, if, the
issue is made through the book-building process and the issuer undertakes to allot at least
75% of the net offer, to qualified institutional buyers and to refund full subscription money if
it fails to make the said minimum allotment to qualified institutional buyers.

GENERAL CONDITIONS FOR FPO

An issuer making an FPO shall ensure that:
a) it has made an application to one or more stock exchanges to seek an in-principle approval for
listing;
b) it has entered into an agreement with a depository for dematerialisation of the specified
securities;
c) all its specified securities held by the promoters are in dematerialised form prior to filing of
the offer document;
d) all its existing partly paid-up equity shares have either been fully paid-up or have been forfeited;

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e) it has made firm arrangements of finance through verifiable means towards seventy five percent
of the stated means of finance for a specific project proposed to be funded from the issue
proceeds, excluding the amount to be raised through the proposed public issue or through
existing identifiable internal accruals.

An issuer making an FPO shall ensure that the amount for general corporate purposes and such
objects where the issuer company has not identified acquisition or investment target, as
mentioned in objects of the issue in the draft offer document and the offer document, shall
not exceed 35% of the amount being raised by the issuer.

However, the amount raised for such objects where the issuer company has not identified
acquisition or investment target, as mentioned in objects of the issue in the draft offer
document and the offer document, shall not exceed 25% of the amount being raised by the
issuer.

Further, such limits shall not apply if the proposed acquisition or strategic investment object
has been identified and suitable specific disclosures about such acquisitions or investments are
made in the draft offer document and the offer document at the time of filing of offer
documents.

ENTITIES NOT ELIGIBLE TO MAKE AN FPO

An issuer shall not be eligible to make a FPO of specified securities:
a. If the issuer, any of its promoters, promoter group, selling shareholders are debarred from
accessing the capital market by the SEBI.
b. If any of the promoters or directors of the issuer is a promoter or a director of any other
company which is debarred from accessing the capital market by the SEBI.
c. If the issuer or any of its promoters or directors is a wilful defaulter or a fraudulent borrower.
d. If any of the promoters or directors of the issuer is a fugitive offender.

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Note: The restrictions under (a) and (b) above shall not apply to the persons or entities
mentioned therein, who were debarred in the past by the SEBI and the period of debarment
is already over as on the date of filing of the draft offer document with the SEBI.

SECURITY DEPOSIT

The issuer shall, before the opening of the subscription list, deposit with the stock exchange
or stock exchanges an amount calculated at the rate of 1% of the amount of the issue size
available for subscription to the public as may be specified by SEBI and the amount so
deposited shall be refundable or forfeitable in the manner specified by SEBI.

IPO GRADING

The issuer may obtain grading for its initial public offer from one or more credit rating agencies
registered with the SEBI.

MINIMUM PROMOTERS’ CONTRIBUTION IN CASE OF IPO

The promoters of the issuer shall hold at least twenty percent of the post-issue capital.
However, in case the post-issue shareholding of the promoters is less than twenty per cent,
alternative investment funds or foreign venture capital investors or scheduled commercial banks
or public financial institutions or insurance companies registered with IRDA may contribute to
meet the shortfall in minimum contribution as specified for the promoters, subject to a
maximum of ten percent of the post-issue capital without being identified as promoter(s).

LOCK-IN OF SPECIFIED SECURITIES HELD BY THE PROMOTERS IN CASE INITIAL PUBLIC

OFFER (REGULATION 16)

The promoter‘s minimum contribution (20%) including contribution made by AIFs or FVCIs
or scheduled commercial banks or PFIs or insurance companies registered with IRDA, including
contribution made by AIFs or FVCIs or scheduled commercial banks or PFIs or insurance

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companies registered with IRDA, shall be locked - in for a period of eighteen months from the
date of allotment in the initial public offer.

Provided that in case the majority of the issue proceeds excluding the portion of offer for sale
is proposed to be utilized for capital expenditure, then the lock-in period shall be three years
from the date of allotment in the initial public offer.

The excess promoters’ contribution over the required minimum contribution shall
be locked in for a period of 6 months from the date of allotment.

Provided that in case the majority of the issue proceeds excluding the portion of offer for sale
is proposed to be utilized for capital expenditure, then the lock-in period shall be one year from
the date of allotment in the initial public offer.

Explanation: For the purpose of this sub-regulation, “capital expenditure” shall include civil
work, miscellaneous fixed assets, purchase of land, building and plant and machinery, etc.

LOCK-IN OF SPECIFIED SECURITIES HELD BY PERSONS OTHER THAN THE PROMOTERS

(REGULATION 17)
The entire pre-issue capital held by persons other than the promoters shall be locked-in for a
period of 6 months from the date of allotment.

The provisions of this regulation shall not apply, in case of:

(i) Equity shares allotted to employees under employee stock option prior to initial public offer, if
the issuer has made full disclosures with respect to such option; and
(ii) Equity shares held by an employee stock option trust or transferred to the employees by an
employee stock option trust pursuant to exercise of options by the employees, in accordance with
the employee stock option plan or employee stock purchase scheme.
(iii) Equity shares held by a venture capital fund or AIF of category I & II or a FVCI and such equity
shares shall be locked-in for a period of at least six months from the date of purchase by the
venture capital or AIF or FVCI.

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For Point No. (iii), in case such equity shares have resulted pursuant to conversion of fully paid-
up compulsorily convertible securities, the holding period of such convertible securities as well as
that of resultant equity shares together shall be considered for the purpose of calculation of one
year period and convertible securities shall be deemed to be fully paid- up, if the entire
consideration payable thereon has been paid and no further consideration is payable at the time
of their conversion.

MINIMUM PROMOTERS’ CONTRIBUTION IN CASE OF FPO

The promoters shall contribute in the public issue as follows:

a) either to the extent of twenty percent of the proposed issue size or to the extent of twenty
per cent of the post-issue capital;
b) in case of a composite issue (i.e. further public offer cum rights issue), either to the extent
of twenty percent of the proposed issue size or to the extent of twenty percent of the post-
issue capital excluding the rights issue component.
The promoters shall contribute in the public issue as follows:

The SR equity shares of promoters, if any, shall be eligible towards computation of minimum
promoters’ contribution.

Exemption from Requirement of Promoters’ Contribution

The requirements of minimum promoters’ contribution shall not apply in case of:
(a) An issuer which does not have any identifiable promoter
(b) In case of a further public offer, where the equity shares of the issuer are frequently traded
on a recognised stock exchange for a period of at least three years and the issuer has a
track record of dividend payment for at least three immediately preceding years, and the
issuer has redressed at least 95% of the complaints received from the investors till the end
of the quarter immediately preceding the month of the reference date.

Further, it is provided that the issuer has been in compliance with the SEBI (LODR)
Regulations, 2015, for a minimum period of 3 years immediately preceding the reference date.

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However, if the issuer has not complied with the provisions of SEBI (LODR) Regulations, 2015,
relating to composition of board of directors, for any quarter during the last three years
immediately preceding the date of filing of draft offer document/offer document, but is
compliant with such provisions at the time of filing of draft offer document/offer document,
and adequate disclosures are made in the offer document about such non-compliances during
the three years immediately preceding the date of filing the draft offer document/offer
document, it shall be deemed as compliance with the condition.

SEBI further laid the condition that where the promoters propose to subscribe to the specified
securities offered to the extent greater than higher of the two options available in clause (a),
the subscription in excess of such percentage shall be made at a price determined in terms of
the provisions of regulation 164 or the issue price, whichever is higher.

Reference date for the purpose of computing the annualised trading turnover referred to in the
said Explanation shall be the date of filing the draft offer document with the Board and in
case of a fast track issue, the date of filing the offer document with the Registrar of Companies,
and before opening of the issue.

LOCK-IN OF SPECIFIED SECURITIES HELD BY THE PROMOTERS IN CASE FURTHER PUBLIC

OFFER (REGULATION 115)

The promoters shall contribute in the public issue as follows:

c) either to the extent of twenty percent of the proposed issue size or to the extent of twenty
per cent of the post-issue capital;
d) in case of a composite issue (i.e. further public offer cum rights issue), either to the extent
of twenty percent of the proposed issue size or to the extent of twenty percent of the post-
issue capital excluding the rights issue component.

Period of lock in shall now be eighteen months from the date of allotment of the further
public offer upto 20% of the proposed issue.

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Promoters’ holding in excess of minimum promoters’ contribution shall be locked-in for a period
of 6 months instead of 1 year.

TRANSFERABILITY OF LOCKED-IN SPECIFIED SECURITIES

Subject to the provisions of Securities and Exchange Board of India (Substantial

Acquisition of Shares and Takeovers) Regulations, 2011, the specified securities except SR
equity shares held by the promoters and locked-in (promoters locked in shares), may be
transferred to another promoter or any person of the promoter group or a new promoter.

The specified securities held by persons other than the promoters and locked-in as per regulation
17 (lock in of securities held by persons other than promoters), may be transferred to any
other person holding the specified securities which are locked-in along with the
securities proposed to be transferred. Lock-in on such specified securities shall continue for
the remaining period with the transferee and such transferee shall not be eligible to transfer
them till the lock-in period stipulated in these regulations has expired.

MINIMUM SUBSCRIPTION

The minimum subscription to be received in an issue shall not be less than 90% of the offer
through offer document.

UNDERWRITING (REGULATION 40 AND 136)

(1) If the issuer making an initial public offer or further public offer, other than through the book
building process, desires to have the issue underwritten to cover under-subscription in the
issue, it shall, prior to the filing of the prospectus, enter into an underwriting agreement with
the merchant bankers or stock brokers to act as underwriters, indicating therein the maximum
number of specified securities they shall subscribe to, either by themselves or by procuring
subscription, at a predetermined price which shall not be less than the issue price, and shall
disclose the fact of such underwriting agreement in the prospectus.

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(2) The issuer making an initial public offer or further public offer, other than through the book
building process, shall, prior to the filing of the prospectus, enter into an underwriting agreement
with the merchant bankers or stock brokers registered with the Board to act as underwriters,
indicating therein the number of specified securities they shall subscribe to on account of
rejection of applications, either by themselves or by procuring subscription, at a predetermined
price which shall not be less than the issue price, and shall disclose the fact of such
underwriting agreement in the prospectus.
(3) If the issuer makes a public issue through the book building process:
(a) the issue shall be underwritten by lead manager(s) and syndicate member(s), provided that
at least seventy five per cent of the net offer proposed to be compulsorily allotted to qualified
institutional buyers for the purpose of compliance of the eligibility conditions specified in
regulation 6(2) shall not be underwritten.
(b) the issuer shall, prior to the filing of the prospectus, enter into an underwriting agreement
with the lead manager(s) and syndicate member(s), indicating therein the number of specified
securities they shall subscribe to on account of rejection of bids, either by themselves or by
procuring subscription, at a price which shall not be less than the issue price, and shall disclose
the fact of such underwriting agreement in the prospectus.
(c) if the issuer desires to have the issue underwritten to cover under-subscription in the issue, it
shall, prior to the filing of the red herring prospectus, enter into an underwriting agreement
with the lead manager(s) and syndicate member(s) to act as underwriters, indicating therein
the maximum number of specified securities they shall subscribe to, either by themselves or
by procuring subscription, at a price which shall not be less than the issue price, and shall
disclose the fact of such underwriting agreement in the red herring prospectus.
(d) if the syndicate member(s) fail to fulfil their underwriting obligations, the lead manager(s)
shall fulfil the underwriting obligations.
(e) the lead manager(s) and syndicate member(s) shall not subscribe to the issue in any manner
except for fulfilling their underwriting obligations.
(f) in case of every underwritten issue, the lead manager(s) shall undertake minimum underwriting
obligations as specified in the Securities and Exchange Board of India (Merchant Bank ers)
Regulations, 1992.

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(g) where the issue is required to be underwritten, the underwriting obligations should be at least
to the extent of minimum subscription.

MONITORING AGENCY

If the issue size excluding the size of offer for sale by selling shareholders, exceeds Rs.100
crores, the issuer shall ensure that the use of the proceeds of the issue is monitored by a
credit rating agency registered with the SEBI

The monitoring agency shall submit its report to the issuer in the format specified in the ICDR
Regulations, 2018 on a quarterly basis, till entire issue proceeds of the issue excluding the
proceeds raised for general corporate purposes, have been utilized.
The Board of Directors and the management of the issuer shall provide their comments on the
findings of the monitoring agency.

The issuer shall, within forty five days from the end of each quarter, publicly disseminate the
report of the monitoring agency by uploading the same on its website as well as submitting
the same to the stock exchange(s) on which its equity shares are listed.

RELEASE OF SUBSCRIPTION MONEY

- The lead manager(s) shall confirm to the bankers to the issue by way of copies of listing and
trading approvals that all formalities in connection with the issue have been completed and
that the banker is free to release the money to the issuer or release the money for refund in
case of failure of the issue.
- In case the issuer fails to obtain listing or trading permission from the stock exchanges where
the specified securities were to be listed, it shall refund through verifiable means the entire
monies received within 4 days of receipt of intimation from stock exchanges rejecting the
application for listing of specified securities, and if any such money is not repaid within 4 days
after the issuer becomes liable to repay it, the issuer and every director of the company who
is an officer in default shall, on and from the expiry of the 4th day, be jointly and severally

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liable to repay that money with interest at the rate of fifteen per cent per annum.

POST-ISSUE ADVERTISEMENT

The issuer company shall soon after receiving final observations, if any, on the offer document
from SEBI, make an advertisement in an English National daily with wide circulation, one Hindi
National newspaper and a regional language newspaper with wide circulation at the place where
the registered office of the issuer is situated. In case of a fast track issue, the advertisement
shall be made before the issue opening date.

FAST TRACK ISSUES

An Issuer Company need not file the draft offer document with SEBI and obtain observations
from SEBI, or make a security Deposit with the Stock Exchanges if it satisfies the following
conditions:
(a) the equity shares of the issuer have been listed on any stock exchange for a period of at
least three years immediately preceding the reference date;
(b) entire shareholding of the promoter group of the issuer is held in dematerialised form on
the reference date;
(c) the average market capitalisation of public shareholding of the issuer is at least one thousand
crore rupees in case of public issue and two hundred and fifty crore rupees in case of rights
issue.
(d) the annualised trading turnover of the equity shares of the issuer during six calendar months
immediately preceding the month of the reference date has been at least 2% of the
weighted average number of equity shares listed during such six months’ period. However if
the public shareholding is less than fifteen per cent of its issued equity capital, the
annualised trading turnover of its equity shares has been at least two per cent of the
weighted average number of equity shares available as free float during such six months’
period;
(e) annualized delivery-based trading turnover of the equity shares during six calendar months
immediately preceding the month of the reference date has been at least ten per cent of

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the annualised trading turnover of the equity shares during such six months‘ period;
(f) The issuer has been in compliance with the equity listing agreement or SEBI Listing
Regulations, 2015, as applicable, for a period of at least three years immediately preceding
the reference date. Further, imposition of monetary fines by stock exchange on the issuer
shall not be a ground for ineligibility for undertaking issuances under these regulations.
(g) the issuer has redressed at least ninety five per cent of the complaints received from the
investors till the end of the quarter immediately preceding the month of the reference date;
(h) no show-cause notices have been issued or prosecution proceedings have been initiated by
the SEBI and pending against the issuer or its promoters or whole-time directors as on the
reference date;
(i) issuer or promoter or promoter group or director of the issuer has not settled any alleged
violation of securities laws through the consent or settlement mechanism with the SEBI
during three years immediately preceding the reference date;
(j) equity shares of the issuer have not been suspended from trading as a disciplinary measure
during last three years immediately preceding the reference date;
(k) There shall be no conflict of interest between the lead merchant banker(s) and the issuer
or its group or associate company in accordance with applicable regulations.
(l) impact of audit qualifications, if any and where quantifiable, on the audited accounts of the
issuer in respect of those financial years for which such accounts are disclosed in the letter
of offer does not exceed five per cent of the net profit or loss after tax of the issuer for
the respective years.
“Average Market Capitalisation of Public Shareholding” means the sum of daily market
capitalisation of public shareholding for a period of one year up to the end of the quarter
preceding the month in which the proposed issue was approved by the shareholders or the
board of the issuer, as the case may be, divided by the number
of trading days.

CONDITIONS FOR AN OFFER FOR SALE

1. Shares must be fully paid-up.

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2. It shall be held by the sellers for a period of at least one year prior to the filing of the draft
offer document.
3. The holding period of such convertible securities, including depository receipts, as well as that
of resultant equity shares together shall be considered for the purpose of calculation of one
year period.
4. The equity shares received on conversion or exchange of fully paid-up compulsorily convertible
securities including depository receipts are being offered for sale

Non-Applicability
1. The offer for sale of a government company or statutory authority or corporation or any special
purpose vehicle set up and controlled by any one or more of them, which is engaged in the
infrastructure sector;
2. Equity shares offered for sale were acquired pursuant to any scheme approved by a High Court
under the sections 391 to 394 of Companies Act, 1956, or approved by a tribunal or the Central
Government under the sections 230 to 234 of Companies Act, 2013, as applicable, in lieu of
business and invested capital which had been in existence for a period of more than one year
prior to approval of such scheme;
3. If the equity shares offered for sale were issued under a bonus issue on securities held for a
period of at least one year prior to the filing of the draft offer document with the SEBI and
further subject to the following:

ADDITIONAL CONDITIONS FOR AN OFFER FOR SALE

a. shares offered for sale to the public by shareholder(s) holding, individually or with persons
acting in concert, more than twenty per cent of pre-issue shareholding of the issuer based on
fully diluted basis, shall not exceed fifty per cent of their pre-issue shareholding on fully diluted
basis;
b. shares offered for sale to the public by shareholder(s) holding, individually or with persons
acting in concert, less than twenty per cent of pre-issue shareholding of the issuer based on
fully diluted basis, shall not exceed ten per cent of pre-issue shareholding of the issuer on
fully diluted basis;

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c. for shareholder(s) holding, individually or with persons acting in concert, more than twenty
per cent of pre-issue shareholding of the issuer based on fully diluted basis, provisions of lock -
in as specified under regulation 17 of these regulations shall be applicable, and relaxation from
lock-in as provided under clause (c) of regulation 17 of these regulations shall not be applicable.

ISSUE OF WARRANTS

An issuer shall be eligible to issue warrants in an initial public offer subject to the following:
a) the tenure of such warrants shall not exceed eighteen months from the date of their allotment
in the initial public offer;
b) a specified security may have one or more warrants attached to it;
c) the price or formula for determination of exercise price of the warrants shall be determined
upfront and disclosed in the offer document and at least 25 per cent of the consideration
amount based on the exercise price shall also be received upfront;
However, in case the exercise price of warrants is based on a formula, 25 per cent consideration
amount based on the cap price of the price band determined for the linked equity shares or
convertible securities shall be received upfront.
d) in case the warrant holder does not exercise the option to take equity shares against any of
the warrants held by the warrant holder, within three months from the date of payment of
consideration, such consideration made in respect of such warrants shall be forfeited by the
issuer.

RIGHTS ISSUE

Definition of Right Issue

Rights issue means an offer of specified securities by a listed issuer to the shareholders of the
issuer as on the record date fixed for the said purpose.
- It is pre-emptive rights given by the status to existing shareholders.
- The offer is required to be made to the existing shareholders on pro-rata to their existing
holdings.

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- The shareholders who are offered may or may not subscribe to the same. They may subscribe
partly or fully the offer.
- They have a power to renounce the shares offered to any other person who need not be an
existing shareholder of the company.
- An issuer offering specified securities of aggregate value of fifty crore rupees or more, through
a rights issue shall satisfy the conditions of SEBI (ICDR) Regulations, 2018 at the time of
filing the draft letter of offer with the SEBI and also at the time of filing the final letter of
offer with the stock exchanges.

Entities not eligible to make a rights issue [Regulation 61]

An issuer shall not be eligible to make a rights issue of specified securities:
a) If the issuer, any of its promoters, promoter group or directors of the issuer are debarred from
accessing the capital market by the SEBI;
b) If any of the promoters or directors of the issuer is a promoter or director of any other company
which is debarred from accessing the capital market by the SEBI.
c) If any of its promoters or directors is a fugitive economic offender.

Explanation: The restrictions under (a) and (b) above will not apply to the promoters or
directors of the issuer who were debarred in the past by the SEBI and the period of debarment
is already over as on the date of filing of the draft letter of offer with the SEBI.

General conditions [Regulation 62]

1. The issuer making a rights issue of specified securities shall ensure that:
- it has made an application to one or more stock exchanges to seek an in-principle approval for
listing of its specified securities on such stock exchanges and has chosen one of them as the
designated stock exchange.
- all its existing partly paid-up equity shares have either been fully paid-up or have been forfeited;
- it has made firm arrangements of finance through verifiable means towards seventy five per
cent of the stated means of finance for the specific project proposed to be funded from issue
proceeds, excluding the amount to be raised through the proposed rights issue or through
existing identifiable internal accruals.

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2. Where the issuer or any of its promoters or directors is a wilful defaulter or a fraudulent
borrower, the promoters or promoter group of the issuer shall not renounce their rights except
to the extent of renunciation within the promoter group.
3. Where the issuer has issued SR equity shares to its promoters or founders, then such a SR
shareholder shall not renounce their rights and the SR shares received in a rights issue shall
remain under lock-in until conversion into equity shares having voting rights same as that of
ordinary equity shares along with existing SR equity shares.
4. An issuer making a Rights issue shall ensure that the amount for general corporate purposes
and such objects where the issuer company has not identified acquisition or investment target,
as mentioned in objects of the issue in the draft offer document and the offer document, shall
not exceed 35% of the amount being raised by the issuer.

However, the amount raised for such objects where the issuer company has not identified
acquisition or investment target, as mentioned in objects of the issue in the draft offer
document and the offer document, shall not exceed 25% of the amount being raised by the
issuer.

Further, such limits shall not apply if the proposed acquisition or strategic investment object
has been identified and suitable specific disclosures about such acquisitions or investments are
made in the draft offer document and the offer document at the time of filing of offer
documents.

PREFERENTIAL ISSUE

Definition of Preferential Issue

“Preferential issue” means an issue of specified securities by a listed issuer to any select
person or group of persons on a private placement basis and does not include an offer of
specified securities made through employee stock option scheme, employee stock purchase
scheme or an issue of sweat equity shares or depository receipts issued in a country outside
India or foreign securities.

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Issuers Ineligible to Make a Preferential Issue [Regulation 159]

1. Preferential issue of specified securities shall not be made to any person who has sold or
transferred any equity shares of the issuer during the six months preceding the relevant date.
However in respect of the preferential issue of equity shares and compulsorily convertible debt
instruments, whether fully or partly, the SEBI may grant relaxation from the requirements of
this sub-regulation, if the SEBI has granted relaxation in terms of SEBI (SAST) Regulations,
2011 to such a preferential allotment.
2. Where any person belonging to promoter(s) or the promoter group has previously subscribed to
warrants of an issuer but has failed to exercise the warrants, the promoter(s) and promoter
group shall be ineligible for issue of specified securities of such issuer on preferential basis for
a period of one year from the date of expiry of the tenure of the warrants due to non-exercise
of the option to convert; OR the date of cancellation of the warrants, as the case may be.
3. An issuer shall not be eligible to make a preferential issue if any of its promoters or directors
is a fugitive economic offender.
4. Preferential issue of specified securities shall not be made to any person who has sold or
transferred any equity shares of the issuer during the 90 trading days (earlier six months)
preceding the relevant date.
5. An issuer shall not be eligible to make a preferential issue if it has any outstanding dues to
the Board, the stock exchanges or the depositories. However, this shall not be applicable in a
case where such outstanding dues are the subject matter of a pending appeal or proceeding(s),
which has been admitted by the relevant Court, Tribunal or Authority.

Conditions for preferential issue [Regulation 160]

A listed issuer making a preferential issue of specified securities shall ensure that:
a) all equity shares allotted by way of preferential issue shall be made fully paid up at the time
of the allotment;
b) a special resolution has been passed by its shareholders;
c) all equity shares held by the proposed allottees in the issuer are in dematerialised form;
d) the issuer is in compliance with the conditions for continuous listing of equity shares;
e) the issuer has obtained the Permanent Account Numbers of the proposed allottees, except
those which may be exempt by SEBI.

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Tenure of Convertible Securities

Upon exercise of the option by the allottee to convert the convertible securities within the
tenure, the issuer shall ensure that the allotment of equity shares pursuant to exercise of the
convertible securities is completed within 15 days from the date of such exercise by the allottee.

Disclosures to shareholders
The issuer shall place a copy of the certificate of a practicing company secretary before the
general meeting of the shareholders considering the proposed preferential issue, certifying that
the issue is being made in accordance with the requirements of the SEBI (ICDR) Regulations,
2018.

Specified securities may be issued on a preferential basis for consideration other than
cash: Provided that consideration other than cash shall comprise only swap of shares pursuant
to a valuation report by an independent registered valuer, which shall be submitted to the
stock exchange(s) where the equity shares of the issuer are listed.

Lock-in
Lock in requirement for securities allotted to promoters/ promoter group (upto 20% of the post
issue capital) has been reduced to 18 months. For allotment exceeding 20% of the post issue
capital, lock in period has been reduced to 6 months. Lock in requirement for allotment to
persons other than promoters and promoter group has been reduced to 6 months.

Pledge of locked-in specified securities

Specified securities, except SR equity shares, held by the promoters and locked-in under the
provisions of these regulations, may be pledged as collateral for a loan granted by a scheduled
commercial bank or a public financial institution or a systemically important non-banking
finance company or a housing finance company:

Provided that the loan has been granted to the issuer or its subsidiary(ies) for the purpose of
financing one or more of the objects of the issue and pledge of specified securities is one of
the conditions for sanction of the loan

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Provided further that the lock-in on the specified securities shall continue pursuant to the
invocation of the pledge and the entity invoking the pledge shall not be eligible to transfer the
specified securities till the lock-in period stipulated in these regulations has expired.

QUALIFIED INSTITUTIONS PLACEMENT

Definition of Qualified Institutions Placement

Qualified institutions placement means issue of eligible securities by a listed issuer to qualified
institutional buyers on a private placement basis and includes an offer for sale of specified
securities by the promoters and/or promoter group on a private placement basis, in terms of
these regulations.

Conditions for Qualified Institutions Placement [Regulation 172]

- a special resolution approving the qualified institutions placement has been passed by its
shareholders.
- No shareholders’ resolution will be required in case the qualified institutions placement is
through an offer for sale by promoters or promoter group for compliance with minimum public
shareholding requirements specified in the Securities Contracts (Regulation) Rules, 1957;
- The allotment shall be completed within a period of 365 days from the date of passing of the
resolution.
- The equity shares of the same class, which are proposed to be allotted through qualified
institutions placement have been listed on a stock exchange for a period of at least one year
prior to the date of issuance of notice to its shareholders.
- Where an issuer, being a transferee company in a scheme of compromise, arrangement and
amalgamation makes qualified institutions placement, the period for which the equity shares
of the same class of the transferor company were listed on a stock exchange having nation -
wide trading terminals shall also be considered for the purpose of computation of the period of
one year. This clause shall not be applicable to an issuer proposing to undertake qualified
institutional placement for complying with the minimum public shareholding requirements
specified in the Securities Contracts (Regulation) 1957.

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- An issuer shall not be eligible to make a qualified institutions placement if any of its promoters
or directors is not a fugitive economic offender.
- The issuer shall not make any subsequent qualified institutions placement until the expiry of
two weeks from the date of the prior qualified institutions placement made pursuant to one or
more special resolutions.

INITIAL PUBLIC OFFER OF INDIAN DEPOSITORY RECEIPTS

Eligibility conditions [Regulation 183]

(1) An issuer shall be eligible to make an issue of IDRs only if:
- the issuing company is listed in its home country for at least three immediately preceding
years;
- the issuer is not prohibited to issue securities by any regulatory body;
- the issuer has a track record of compliance with the securities market regulations in its home
country;
- any of its promoters or directors is not a fugitive economic offender.

(2) The issue shall be subject to the following conditions:

- issue size shall not be less than fifty crore rupees;
- at any given time, there shall be only one denomination of IDRs of the issuer.
- issuer shall ensure that the underlying equity shares against which IDRs are issued have
been or will be listed in its home country before listing of IDRs in stock exchange(s).
- issuer shall ensure that the underlying shares of IDRs shall rank pari passu with the existing
shares of the same class.

(3) The issuer shall ensure that:

- it has made an application to one or more stock exchanges to seek an in-principle approval
for listing of the IDRs on such stock exchanges and has chosen one of them as the designated
stock exchange,
- it has entered into an agreement with a depository for dematerialisation of the IDRs proposed
to be issued;

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- it has made firm arrangements of finance through verifiable means towards seventy five per
cent of the stated means of finance for the project proposed to be funded from issue proceeds,
excluding the amount to be raised through the proposed issue of IDRs or through existing
identifiable internal accruals, have been made.

(4) The amount for general corporate purposes, as mentioned in objects of the issue in the
draft offer document and the offer document shall not exceed twenty five per cent of the
amount being raised by the issuer.

RIGHTS ISSUE OF INDIAN DEPOSITORY RECEIPTS

The issuer shall ensure that it has made an application to all the stock exchanges in India,
where its IDRs are already listed, for listing of the IDRs to be issued by way of rights and has
chosen one of them as the designated stock exchange.

Entities not eligible to make a rights issue [Regulation 213]

An issuer shall not be eligible to make a rights issue of IDRs if –
- at the time of undertaking the rights issue, the issuer is in breach of ongoing material
obligations under the listing agreement and SEBI (LODR) Regulations, 2015.
- any of its promoters or directors is a fugitive economic offender

CLARIFICATION ON FRAMEWORK FOR ISSUE OF DEPOSITORY RECEIPTS

Permissible holder means a holder of DR, including its Beneficial Owner(s), satisfying the
following conditions:
a) who is not a person resident in India;
b) who is not a Non-Resident Indian (NRI)
The restriction under this Clause shall not apply in case of issue of DRs to NRIs, pursuant to
share based employee benefit schemes which are implemented by a company in terms of SEBI
(Share Based Employee Benefits and Sweat Equity) Regulations, 2021

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The restriction under this Clause shall also not apply in case of issue of DRs by the company
to NRIs pursuant to a bonus issue or a rights issue;

The onus of identification of NRIs holders, who are issued DRs in terms employee benefit
scheme, would lie with the listed company. The listed company shall provide the information
of such NRI DR holders to the designated depository for the purpose of monitoring of limits.

INITIAL PUBLIC OFFER BY SMALL AND MEDIUM ENTERPRISES

Entities not eligible to make an initial public offer [Regulation 228]

An issuer shall not be eligible to make an initial public offer:
(a) if the issuer, any of its promoters, promoter group or directors or selling shareholders are
debarred from accessing the capital market by the SEBI;
(b) if any of the promoters or directors of the issuer is a promoter or director of any other company
which is debarred from accessing the capital market by the SEBI;
(c) if the issuer or any of its promoters or directors is a wilful defaulter or a fraudulent borrower.
(d) if any of its promoters or directors is a fugitive economic offender.

Eligibility requirements for an initial public offer [Regulation 229]

(1) An issuer shall be eligible to make an initial public offer only if its post-issue paid-up capital
is less than or equal to ten crore rupees.
(2) An issuer, whose post issue face value capital is more than ten crore rupees and upto twenty
five crore rupees, may also issue specified securities in accordance with provisions of this
Chapter.
(3) An issuer may make an initial public offer, if it satisfies track record and/or other eligibility
conditions of the SME Exchange(s) on which the specified securities are proposed to be listed.

General conditions [Regulation 230]

An issuer making an initial public offer shall ensure that:
- it has made an application to one or more SME exchanges for listing.

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- it has entered into an agreement with a depository for dematerialisation of its specified
securities already issued and proposed to be issued;
- all its existing partly paid-up equity shares have either been fully paid-up or forfeited;
- all specified securities held by the promoters are in the dematerialised form;
- it has made firm arrangements of finance through verifiable means towards seventy five per
cent of the stated means of finance for the project proposed to be funded from the issue
proceeds, excluding the amount to be raised through the proposed public offer or through
existing identifiable internal accruals.
The amount for general corporate purposes, as mentioned in objects of the issue in the draft
offer document and the offer document shall not exceed twenty five per cent of the amount
being raised by the issuer.

INNOVATORS GROWTH PLATFORM

Definition of Innovators growth platform

“Innovators growth platform” means the trading platform for listing and trading of specified
securities of issuers that comply with the eligibility criteria specified in SEBI (ICDR), 2018.

Listing on IGP
1. Aimed to list startups which are intensive in the use of technology, information technology,
intellectual property, data analytics, bio-technology or nano-technology to provide products
services or business platforms with substantial value addition.
2. Atleast twenty five per cent of the pre-issue capital of the Issuer Company for at least a
period of one year, should have been held by Qualified Institutional Buyers, IGP Investors or
any other class of investors as specified by SEBI.
3. Listing is allowed, with or without IPO. SEBI will issues its observations in both the cases.
4. The minimum offer size shall be ten crores in case of IPO.
5. Minimum application size shall be INR two lakh and in multiples.
6. Number of allottees in the IPO shall be atleast 50.
7. Minimum trading lot shall be INR 2 lakhs or multiples.

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BONUS ISSUE

Bonus issue of shares means additional shares issued by the Company to its existing
shareholders to reward for their royalty and is an opportunity to enhance the shareholders
wealth. The bonus shares are issued without any cost to the Company by capitalizing the
available reserves.

Conditions for bonus issue [Regulation 293]

Subject to the provisions of the Companies Act, 2013 or any other applicable law, a listed
issuer shall be eligible to issue bonus shares to its members if:
- it is authorised by its articles of association for issue of bonus shares, capitalisation of reserves,
etc.
- If there is no such provision in the articles of association, the issuer shall pass a resolution at
its general body meeting making provisions in the articles of associations for capitalisation of
reserve;
- it has not defaulted in payment of interest or principal in respect of fixed deposits or debt
securities issued by it;
- it has not defaulted in respect of the payment of statutory dues of the employees such as
contribution to provident fund, gratuity and bonus;
- any outstanding partly paid shares on the date of the allotment of the bonus shares, are made
fully paid-up;
- any of its promoters or directors is not a fugitive economic offender.
- It has received approval from the stock exchanges for listing and trading of all the securities,
excluding options granted to employees pursuant to an employee stock option scheme and
convertibles securities, issued by the issuer prior to the issuance of bonus shares.
- Bonus issue shall be made only in dematerialised form.

Restrictions on bonus issue [Regulation 294]

- An issuer shall make a bonus issue of equity shares only if it has made reservation of equity
shares of the same class in favour of the holders of outstanding compulsorily convertible debt
instruments if any, in proportion to the convertible part thereof.

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- The equity shares so reserved for the holders of fully or partly compulsorily convertible debt
instruments, shall be issued to the holder of such convertible debt instruments on the same
terms or same proportion at which the bonus shares were issued.
- A bonus issue shall be made only out of free reserves, securities premium account or capital
redemption reserve account and built out of the genuine profits or securities premium collected
in cash and reserves created by revaluation of fixed assets shall not be capitalised for this
purpose.
- Bonus shares shall not be issued in lieu of dividends.
- If an issuer has issued SR equity shares to its promoters or founders, any bonus issue on the
SR equity shares shall carry the same ratio of voting rights compared to ordinary shares and
the SR equity shares issued in a bonus issue shall also be converted to equity shares having
voting rights same as that of ordinary equity shares along with existing SR equity shares.

Completion of bonus issue [Regulation 295]

- An issuer, announcing a bonus issue after approval by its board of directors and not requiring
shareholders’ approval for capitalisation of profits or reserves for making the bonus issue, shall
implement the bonus issue within fifteen days from the date of approval of the issue by its
board of directors:
- Where the issuer is required to seek shareholders’ approval for capitalisation of profits or
reserves for making the bonus issue, the bonus issue shall be implemented within two months
from the date of the meeting of its board of directors wherein the decision to announce the
bonus issue was taken subject to shareholders’ approval.

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CHAPTER 9 – SHARE BASED EMPLOYEE BENEFITS AND SWEAT EQUITY

SEBI (SHARE BASED EMPLOYEE BENEFITS AND SWEAT EQUITY) REGULATIONS, 2021
Effective from 13 August 2021

IMPORTANT DEFINITIONS
“Employee”, except in relation to issue of sweat equity shares, means, —
(i) an employee as designated by the company, who is exclusively working in India or outside India;
or
(ii) a director of the company, whether a whole time director or not, including a nonexecutive
director who is not a promoter or member of the promoter group, but excluding an independent
director; or
(iii) an employee as defined in sub-clauses (i) or (ii), of a group company including subsidiary or
its associate company, in India or outside India, or of a holding company of the company, but
does not include—
(a) an employee who is a promoter or a person belonging to the promoter group; or

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(b) a director who, either himself or through his relative or through any body corporate, directly or
indirectly, holds more than ten per cent of the outstanding equity shares of the company.

“Scheme” means a scheme of a company proposing to provide share based benefits to its
employees under Chapters III of these regulations, which may be implemented and administered
directly by such company or through a trust, in accordance with these regulations.

“Secretarial auditor” means a company secretary in practice appointed by a company under

rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014 to conduct secretarial
audit pursuant to regulation 24A of the Securities and Exchange Board of India (Listing
Obligations and Disclosure Requirements) Regulations, 2015.

“Employee stock option scheme or ESOS” means a scheme under which a company grants
employee stock options to employees directly or through a trust.
“Employee stock purchase scheme or ESPS” means a scheme under which a company offers
shares to employees, as part of public issue or otherwise, or through a trust where the trust
may undertake secondary acquisition for the purposes of the scheme.

“General employee benefits scheme or GEBS” means any scheme of a company framed in
accordance with these regulations, dealing in shares of the company or the shares of its listed
holding company, for the purpose of employee welfare including healthcare benefits, hospital
care or benefits, or benefits in the event of sickness, accident, disability, death or scholarship
funds, or such other benefit as specified by such company.

“Retirement benefit scheme or RBS” means a scheme of a company framed in accordance

with these regulations, dealing in shares of the company or the shares of its listed holding
company, for providing retirement benefits to the employees subject to compliance with existing
rules and regulations as applicable under laws relevant to retirement benefits in India.
• “Sweat equity shares” means sweat equity shares as defined in sub-section (88) of section
2 of the Companies Act, 2013 (18 of 2013).

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“Appreciation” means the difference between the market price of the share of a company on
the date of exercise of SAR or the date of vesting of SAR, as the case may be, and the SAR
price.

“Exercise” means making of an application by an employee to the company or to the trust

for issue of shares or appreciation in form of cash, as the case may be, against vested options
or vested SARs in pursuance of the schemes covered under Part A or Part C of Chapter III of
these regulations, as the case may be.

“Exercise period” means the time period after vesting within which an employee can exercise
his/her right to apply for shares against the vested option or appreciation against vested SAR
in pursuance of the schemes covered under Part A or Part C of Chapter III of these regulations,
as the case may be.

“Exercise price” means the price, if any, payable by an employee for exercising the option or
SAR granted to such an employee in pursuance of the schemes covered under Part A or Part
C of Chapter III of these regulations, as the case may be.

“Grant” means the process by which the company issues options, SARs, shares or any other
benefits under any of the schemes.

“Grant date” means the date on which the compensation committee approves the grant.
Explanation,—For accounting purposes, the grant date will be determined in accordance with
applicable accounting standards.

“Option” means the option given to an employee which gives such an employee a right to
purchase or subscribe at a future date, the shares offered by the company, directly or indirectly,
at a pre-determined price.

“Option grantee” means an employee having a right but not an obligation to exercise an
option in pursuance of an ESOS.

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“Relevant date” means,-

(i) in the case of grant, the date of the meeting of the compensation committee on which the
grant is made; or
(ii) in the case of exercise, the date on which the notice of exercise is given to the company or
to the trust by the employee.

“Stock appreciation right or SAR” means a right given to a SAR grantee entitling him to
receive appreciation for a specified number of shares of the company where the settlement of
such appreciation may be made by way of cash payment or shares of the company.
Explanation 1 - A SAR settled by way of shares of the company shall be referred to as equity
settled SAR.
Explanation 2 - For the purpose of these regulations, any reference to stock appreciation right
or SAR shall mean equity settled SARs and does not include any scheme which does not,
directly or indirectly, involve dealing in or subscribing to or purchasing, securities of the
company.

“Stock appreciation right scheme or SAR scheme” means a scheme under which a company
grants SAR to employees.

"SAR grantee” means an employee to whom a SAR is granted.

“SAR price” means the base price defined on the grant date of SAR for the purpose of
computing appreciation.

“Trust” means a trust established under the provisions of the Indian Trusts Act, 1882 (2 of
1882) including any statutory modification or re-enactment thereof, for implementing any of
the schemes covered by these regulations.

“Vesting” means the process by which the employee becomes entitled to receive the benefit
of a grant made to him/her under any of the schemes.

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“Vesting period” means the period during which the vesting of option, SAR or a benefit
granted under any of the schemes takes place.

IMPLEMENTATION OF SCHEMES THROUGH TRUST

1. A company may implement a scheme(s) either directly or by setting up an irrevocable trust(s).
If the scheme is to be implemented through a trust, the same has to be decided upfront at
the time of taking approval of the shareholders for setting up the scheme(s).

However, if prevailing circumstances so warrant, the company may change the mode of
implementation of the scheme subject to the condition that a fresh approval of the shareholders
by a special resolution is obtained prior to implementing such a change and that such a change
is not prejudicial to the interests of the employees. Further, if the scheme(s) involves secondary
acquisition or gift or both, then it shall be mandatory for the company to implement such
scheme(s) through a trust(s).

2. A company may implement several schemes as permitted through a single trust. However, such
single trust shall keep and maintain proper books of account & records and documents for each
such scheme and in particular give a true and fair view of the state of affairs of each scheme.

3. The trust deed shall contain provisions as specified in Part A of Schedule – I of these regulations
and such trust deed and any modifications thereto shall be mandatorily filed with the
recognised stock exchange(s).

4. Any person can be appointed as a trustee of the trust, except in cases where such person—
i. is a director, key managerial personnel or promoter of the company or its group company
including its holding, subsidiary or associate company or any relative of such director, key
managerial personnel or promoter; or
ii. beneficially holds ten percent or more of the paid-up share capital or the voting rights of the
company.

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However, where individual(s) or “one person company” as defined under the Companies Act,
2013 is appointed as trustee(s), there shall be a minimum of two such trustees, and in case
a corporate entity is appointed as a trustee, then it may be the sole trustee.

5. The trustees of a trust shall not vote in respect of the shares held by such trust, so as to
avoid any misuse arising out of exercising such voting rights.

6. The trustee should ensure that the requisite approval from the shareholders has been obtained
by the company in order to enable the trust to implement the scheme(s) and undertake
secondary acquisition for the purposes of the scheme(s).

7. The trust shall not deal in derivatives and shall undertake only delivery-based transactions for
the purposes of secondary acquisition as permitted by these regulations.

8. Subject to the requirements of the Companies Act, 2013, the company may lend monies to the
trust on appropriate terms and conditions to acquire the shares either through new issue or
secondary acquisition, for the purpose of implementation of the scheme(s).

9. For the purpose of disclosures to the recognised stock exchange, the shareholding of the trust
shall be shown as “non-promoter and non-public” shareholding. The shares held by the trust
shall not form part of the public shareholding which needs to be maintained at a minimum of
twenty five per cent as prescribed under the Securities Contracts (Regulation) Rules, 1957.

10. Secondary acquisition in a financial year by the trust shall not exceed two percent of the paid
up equity capital of the company as at the end of the previous financial year.

11. The total number of shares under secondary acquisition held by the trust shall at no point of
time exceed the below mentioned limits as a percentage of the paid up equity capital of the
company as at the end of the financial year immediately prior to the year in which the
shareholders’ approval is obtained for such secondary acquisition:

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Sr. No. Particulars Limit

A For the schemes enumerated in Part A, Part B or Part C of Chapter III 5%
of these regulations
B For the schemes enumerated in Part D, or Part E of Chapter III of these 2%
regulations
C For all the schemes in aggregate 5%

12. The unappropriated inventory of shares which are not backed by grants, acquired through
secondary acquisition by the trust under Part A, Part B or Part C of Chapter III of these
regulations, shall be appropriated within a reasonable period which shall not extend beyond the
end of the subsequent financial year, or the second subsequent financial year subject to
approval of the compensation committee/nomination and remuneration committee for such
extension to the second subsequent financial year.

13. The trust shall be required to hold the shares acquired through secondary acquisition for a
minimum period of six months except where they are required to be transferred in the
circumstances enumerated in these regulations, whether off-market or on the platform of
recognised stock exchange.

14. The trust shall be permitted to undertake off-market transfer of shares only under the following
circumstances: -
(a) transfer to the employees pursuant to scheme(s);
(b) while participating in an open offer under the Securities and Exchange Board of India
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011 or while participating in a
buy-back, delisting or any other exit offered by the company generally to its shareholders.

15. The trust shall not become a mechanism for trading in shares and hence shall not sell the
shares in secondary market except under the following circumstances:

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(a) to enable the employee to fund the payment of the exercise price, the amount necessary to
meet his/her tax obligations and other related expenses pursuant to exercise of options granted
under the ESOS;
(b) on vesting or exercise, as the case may be, of SAR under the scheme covered by Part C of
Chapter III of these regulations;
(c) in case of emergency for implementing the schemes covered under Part D and Part E of
Chapter III of these regulations, and for this purpose –
(i) the trustee(s) shall record the reasons for such sale; and
(ii) money so realised on sale of shares shall be utilised within a definite time period as stipulated
under the scheme or trust deed.
(d) participation in buy-back or open offers or delisting offers or any other exit offered by the
company generally to its shareholders, if required;
(e) for repaying the loan, if the unappropriated inventory of shares held by the trust is not
appropriated within the timeline as provided above;
(f) winding up of the scheme(s); and
(g) based on approval granted by the Board to an applicant, for the reasons recorded in writing in
respect of the schemes covered by Part A or Part B or Part C of Chapter III of these regulations,
upon payment of a non-refundable fee of rupees one lakh to the Board along with the
application by way of direct credit in the bank account through NEFT/RTGS/IMPS or any other
mode allowed by the Reserve Bank of India.

16. The trust shall be required to make disclosures and comply with the other requirements
applicable to insiders or promoters under the Securities and Exchange Board of India (Prohibition
of Insider Trading) Regulations, 2015 or any modification or re-enactment thereto.

ELIGIBILITY CRITERIA
An employee shall be eligible to participate in the schemes of the company as determined by
the compensation committee.

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COMPENSATION COMMITTEE
(1) A company shall constitute a compensation committee for administration and superintendence
of the schemes. Where the scheme is being implemented through a trust the compensation
committee shall delegate the administration of such scheme(s) to the trust.
(2) The compensation committee shall be a committee of such members of the Board of Directors
of the company. A company may also opt to designate its nomination and remuneration
committee as the compensation committee.
(3) The compensation committee shall formulate the detailed terms and conditions of the schemes.
(4) The compensation committee shall frame suitable policies and procedures to ensure that there
is no violation of securities laws by the trust, the company and its employees.

SHAREHOLDERS APPROVAL
A Scheme shall not be offered to employees of a company unless the shareholders of the
company approve it by passing a special resolution in the general meeting.

Approval of shareholders by way of separate resolution in the general meeting shall be obtained
by the company in case of:
a) Secondary acquisition for implementation of the schemes.
b) Secondary acquisition by the trust in case the share capital expands due to capital expansion
undertaken by the company including preferential allotment of shares or qualified institutions
placement, to maintain the five percent cap as prescribed in these regulations of such increased
capital of the company;
c) Grant of option, SAR, shares or other benefits to employees of subsidiary or holding company;
d) Grant of option, SAR, shares or benefitsto identified employees, during any one year, equal to
or exceeding one percent of the issued capital (excluding outstanding warrants and conversions)
of the company at the time of grant of option, SAR, shares or incentive.

VARIATION OF TERMS OF THE SCHEMES

(1) A company may by special resolution of its shareholders vary the terms of the schemes offered
pursuant to an earlier resolution of the general body but not yet exercised by the employees,
if such variation is not prejudicial to the interests of the employees

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(2) A company shall be entitled to vary the terms of the schemes to meet any regulatory
requirement without seeking shareholders’ approval by special resolution.
(3) The provisions of regulation 6 (Shareholders’ Approval) of these regulations shall apply to such
variation of terms as they apply to the original grant of option, SAR, shares or other benefits.
(4) The notice for passing a special resolution for variation of terms of the schemes shall disclose
full details of the variation, the rationale therefore, and the details of the employees who are
beneficiaries of such variation.
(5) A company may reprice the options, SAR or shares, which are not exercised, whether or not
they have been vested, if the schemes were rendered unattractive due to fall in the price of
the shares in the stock market.

WINDING UP OF THE SCHEMES

In case of winding up of the schemes being implemented by a company, the excess monies or
shares remaining with the trust after meeting all the obligations, if any, shall be utilised for
repayment of loan or by way of distribution to employees or subject to approval of the
shareholders, be transferred to another scheme under these regulations, as recommended by
the compensation committee.

NON-TRANSFERABILITY
- Option, SAR or any other benefit granted to an employee under the regulations shall not be
transferable to any person. No person, other than the employee to whom the option, SAR or
other benefit is granted, shall be entitled to the benefit arising out of such option, SAR or
other benefit.
- The option, SAR, or any other benefit granted to the employee shall not be pledged,
hypothecated, mortgaged or otherwise alienated in any other manner.
- In the event of death of the employee while in employment, all the options, SAR or any other
benefit granted under a scheme to him/her till his/her death shall vest, with effect from the
date of his/her death, in the legal heirs or nominees of the deceased employee.
- In case the employee suffers a permanent incapacity while in employment, all the options, SAR
or any other benefit granted to him/her under a scheme as on the date of permanent
incapacitation, shall vest in him/her on that day.

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- In the event of resignation or termination of an employee, all the options, SAR or any other
benefit which are granted and yet not vested as on that day, shall expire.

LISTING
In case a new issue of shares is made under any scheme, shares so issued shall be listed
immediately on all recognised stock exchange(s) where the existing shares are listed, subject
to the following conditions:
(a) The scheme is in compliance with these regulations;
(b) A statement, as specified in Part D of Schedule – I of these regulations, is filed and the
company obtains an in-principle approval from the recognised stock exchange(s);
(c) As and when an exercise is made, the company notifies the concerned recognised stock
exchange(s) as per the statement as specified in Part E of Schedule – I of these regulations.

CERTIFICATE FROM AUDITORS

In the case of every company which has passed a resolution for the scheme(s) under these
regulations, the Board of Directors shall at each annual general meeting place before the
shareholders a certificate from the secretarial auditors of the company that the scheme(s)
has been implemented in accordance with these regulations and in accordance with the
resolution of the company in the general meeting.

EMPLOYEE STOCK OPTION SCHEME (ESOS)

Important Terms
1. Grant Date:
Grant date is the date on which list of eligible employees or directors is determined and an
offer is given to all of them.

2. Vesting Date:
On this date, all those eligible persons who were being offered ESOPs, have a right to reply
and the company accordingly vests the said member of stock options in their favour.

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3. Exercise Date:
All the options which are vested, are now due for exercise on this particular date i.e. the
employees have a right to exercise the options granted to them.

Note: There has to be a minimum lock in period of 1 year i.e. minimum gap between grant
date and vesting date should be at least 1 year. The company is free to decide the lock in
period on the shares, issued pursuing to exercise of options.

No options shall carry right of dividend or interest till the time they are converted into shares.
Listed companies are bound to comply with SEBI regulations.
1. Eligibility to participate : Any employee not being a promoter or director holding (along with
relatives) more than 10% of the outstanding equity.
2. Compensation Committee : Constitution of Compensation Committee of Directors is required
in case of ESOS; but not in case of ESPS.
3. Shareholder approval : Special resolution is required to be passed at a general meeting.
4. Pricing : Companies are free to determine Exercise Price subject to its conforming to the
accounting policies prescribed
5. Lock-in period : In case of ESOS, company is free to specify any lock-in period. In case of
ESPS, lock-in period shall be one year from the date of allotment. If the ESPS is part of public
issue and the shares are issued to employees at the same price as in the public issue, the
shares issued to employee pursuant to ESPS shall not be subject to any lock-in period.
6. Auditor’s Certificate : In case of ESOS, a certificate from the Auditors is to be placed at
each AGM stating that the scheme has been implemented as per the guidelines and in
accordance with the special resolution passed. In the case of ESPS, no such certificate is
required.
7. Directors’ Report : Directors’ report shall contain the following disclosures about ESOS Scheme:
(i) The total number of shares covered by the ESOP as approved by the shareholders;
(ii) The pricing formula;
(iii) Options granted, options vested, options exercised, options forfeited, etc.,
(iv) Fully diluted earnings per shares (EPS) computed in accordance with International Accounting
Standards.

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The Director’s Report related to ESPS should contain the following disclosures;
(a) The details of the number of shares issued in the scheme;
(b) The price at which such shares are issued;
(c) Employee-wise details of the shares issued;
(d) Diluted Earnings Per Share (EPS) pursuant to issuance of shares under the scheme;
(e) Consideration received against the issuance of shares.

Note :
In regard to Vesting period, -
- where options are granted by a company under an ESOS in lieu of options held by an employee
under an ESOS in another company which has merged, demerged, arranged or amalgamated
with the first mentioned company, the period during which the options granted by the
transferor company were held by such employee shall be adjusted against the minimum vesting
period.
- In the event of death or permanent incapacity of an employee, the minimum vesting period of
one year shall not be applicable and in such instances, the options shall vest on the date of
the death or permanent incapacity.

EMPLOYEE STOCK PURCHASE SCHEME (ESPS)

The ESPS scheme shall contain the details of the manner in which the scheme will be
implemented and operated.

Pricing and Lock-In

The company may determine the price of shares to be issued under an ESPS, provided they
conform to the provisions of accounting policies under these regulation. Shares issued under an
ESPS shall be locked-in for a minimum period of one year from the date of allotment.

However, in case where shares are allotted by a company under an ESPS in lieu of shares
acquired by the same person under an ESPS in another company which has merged or

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amalgamated with the first mentioned company, the lock-in period already undergone in respect
of shares of the transferor company shall be adjusted against the lock-in period.

If ESPS is part of a public issue and the shares are issued to employees at the same price as
in the public issue, the shares issued to employees pursuant to ESPS shall not be subject to
lock-in.

In the event of death or permanent incapacity of an employee, the requirement of lock-in shall
not be applicable from the date of death or permanent incapacity.

STOCK APPRECIATION RIGHTS SCHEME (SAR SCHEME)

Administration and Implementation

The SAR scheme shall contain the details of the manner in which the scheme will be
implemented and operated. The company shall have the freedom to implement cash settled or
equity settled SAR scheme. However, in case of equity settled SAR scheme, if the settlement
results in fractional shares, then the consideration for fractional shares should be settled in
cash.

Vesting
There shall be a minimum vesting period of one year in case of SAR scheme.

Rights of the SAR Holder

The employee shall not have right to receive dividend or to vote or in any manner enjoy the
benefits of a shareholder in respect of SAR granted to him

Note :
- In case of equity settled SAR scheme, if the settlement results in fractional shares, then the
consideration for fractional shares should be settled in cash.
- In a case where SAR is granted by a company under a SAR scheme in lieu of SAR held by the
employee under a SAR scheme in another company which has merged or amalgama ted with

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the first mentioned company, the period during which the SAR granted by the transferor
company were held by the employee shall be adjusted against the minimum vesting period.
- In the event of death or permanent incapacity, the minimum vesting period of one year shall
not be applicable and in such instances, the options shall vest on the date of death or
permanent incapacity.

GENERAL EMPLOYEE BENEFITS SCHEME (GEBS)

Administration and Implementation
(1) GEBS shall contain the details of the scheme and the manner in which the scheme shall be
implemented and operated.
(2) The shares of the company or shares of its listed holding company shall not exceed ten per
cent of the book value or market value or fair value of the total assets of the scheme, whichever
is lower, as appearing in its latest balance sheet (whether audited or limited reviewed) for the
purposes of GEBS.
(3) The secretarial auditor of the company shall certify the above mentioned point (2) compliance
at the time of adoption of such balance sheet by the company.

RETIREMENT BENEFIT SCHEME (RBS)

Administration and Implementation
(1) Retirement benefit scheme may be implemented by a company subject to compliance with
these regulations and provisions of any other law in force in relation to retirement benefits.
(2) The retirement benefit scheme shall contain the details of the benefits under the scheme and
the manner in which the scheme shall be implemented and operated.
(3) The shares of the company or shares of its listed holding company shall not exceed ten per
cent of the book value or market value or fair value of the total assets of the scheme, whichever
is lower, as appearing in its latest balance sheet (whether audited or limited reviewed) for the
purposes of RBS.
(4) The secretarial auditor of the company shall certify compliance with above mentioned point
(3) at the time of adoption of such balance sheet by the company.

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ISSUE OF SWEAT EQUITY BY A LISTED COMPANY

DEFINITION OF EMPLOYEE IN RELATION TO ISSUE OF SWEAT EQUITY SHARES

The term ‘employee’ means,
(a) an employee of the company working in India or abroad; or
(b) a director of the company whether a whole time director or not.

ISSUE OF SWEAT EQUITY SHARES TO EMPLOYEES

A company whose equity shares are listed on a recognised stock exchange may issue sweat
equity shares in accordance with section 54 of the Companies Act, 2013 and these regulations
to its employees for their providing know-how or making available rights in the nature of
intellectual property rights or value additions, by whatever name called.

MAXIMUM QUANTUM OF SWEAT EQUITY SHARES

A company shall not issue sweat equity shares for more than fifteen percent of the existing
paid up equity share capital in a year. However, the issuance of sweat equity shares in the
company shall not exceed twenty five percent of the paid up equity share capital of the
company at any time.

Further, a company listed on Innovators Growth Platform shall be permitted to issue not more
than fifteen percent of the paid up equity share capital in a financial year subject to overall
limit not exceeding fifty percent of the paid up equity share capital of the company, up to ten
years from the date of its incorporation or registration.

SPECIAL RESOLUTION
(1) For the purposes of passing a special resolution, the explanatory statement to be annexed to
the notice for the general meeting shall contain disclosures as specified in the Schedule – II
of these regulations.
(2) The issue of sweat equity shares to employees who belong to promoter or promoter group shall
be approved by way of a resolution passed by a simple majority of the shareholders in general
meeting. However, for passing such a resolution, voting through postal ballot and/or e-voting

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shall also be adopted. Further, provided that the promoters/promoter group shall not participate
in such resolution.
(3) Each issue of sweat equity shares shall be voted by a separate resolution.
(4) The resolution for issue of sweat equity shares shall be valid for a period of not more than
twelve months from the date of passing of the resolution.

PRICING OF SWEAT EQUITY SHARES

The price of sweat equity shares shall be determined in accordance with the pricing
requirements stipulated for a preferential issue to a person other than a qualified institutional
buyer under the Securities and Exchange Board of India (Issue of Capital and Disclosure
Requirements) Regulations, 2018.

VALUATION
(1) The valuation of the know-how or intellectual property rights or value addition shall be carried
out by a merchant banker.
(2) The merchant banker may consult such experts and valuers, as it may deem fit, having regard
to the nature of the industry and the nature of the valuation of know-how or intellectual
property rights or value addition.
(3) The merchant banker shall obtain a certificate from an independent chartered accountant
certifying that the valuation of the know-how or intellectual property rights or value addition
is in accordance with the relevant accounting standards.

ACCOUNTING TREATMENT
Where the sweat equity shares are issued for a non-cash consideration, such non-cash
consideration shall be treated in the following manner in the books of account of the company:-
(a) where the non-cash consideration takes the form of a depreciable or amortizable asset, it shall
be carried to the balance sheet of the company in accordance with the relevant accounting
standards; or
(b) where clause (a) is not applicable, it shall be expensed as provided in the relevant accounting
standards.

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PLACING OF AUDITOR’S CERTIFICATE BEFORE ANNUAL GENERAL MEETING

In the general meeting subsequent to the issue of sweat equity shares, the Board of Directors
shall place before the shareholders, a certificate from the secretarial auditor of the company
that the issue of sweat equity shares has been made in accordance with these regulations and
in accordance with the resolution passed by the company authorizing the issue of such sweat
equity shares.

CEILING ON MANAGERIAL REMUNERATION

The amount of sweat equity shares issued shall be treated as part of managerial remuneration
for the purpose of sections 196, 197 and other applicable provisions of the Companies Act, 2013,
if the following conditions are fulfilled:
(1) the sweat equity shares are issued to any director or manager; and
(2) the sweat equity shares are issued for non-cash consideration, which does not take the form
of an asset which can be carried to the balance sheet of the company in accordance with the
relevant accounting standards.

LOCK IN OF SWEAT EQUITY SHARES

(1) The sweat equity shares shall be locked in for such period of time as specified in relation to a
preferential issue under the SEBI (ICDR) Regulations, 2018.
(2) The provisions of the Securities and Exchange Board of India (Issue of Capital and Disclosures
Requirements) Regulations, 2018 in respect of public issue in terms of lock-in and computation
of promoters’ contribution shall apply if a company makes a public issue after it has issued
sweat equity shares.

LISTING
The sweat equity shares issued by a listed company shall be eligible for listing subject to their
issuance being in accordance with these regulations.

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APPLICABILITY OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS)

REGULATIONS, 2011
Any acquisition of sweat equity shares shall be subject to the provisions of the Securities and
Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

GENERAL OBLIGATIONS
The company shall ensure that –
(a) the explanatory statement to the notice for general meeting contains the disclosures specified
under the Companies Act, 2013 and regulation 32 of these regulations.
(b) the secretarial auditor’s certificate required under regulation 36 is placed in the general meeting
of the shareholders.
(c) the company, within seven days of the issue of sweat equity shares, sends a statement to the
recognised stock exchange, disclosing:
(i) number of sweat equity shares issued;
(ii) price at which the sweat equity shares are issued;
(iii) total amount received towards sweat equity shares;
(iv) details of the persons to whom sweat equity shares have been issued; and
(v) the consequent changes in the capital structure and the shareholding pattern before and
after the issue of sweat equity shares.

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YT- YES Academy for CS & Law Think, Believe, Receive! Chapter 10 – Non Convertible Securities

CHAPTER 10 – ISSUE AND LISTING OF NON CONVERTIBLE

SECURITIES

IMPORTANT DEFINITIONS UNDER THE SEBI NCS REGULATIONS

DEBT SECURITIES:
A non-convertible debt security with a fixed maturity period which creates or acknowledge
indebtedness and includes debentures, bonds or any other security whether constituting a
charge on the assets/properties or not, but excludes security receipts, securitized debt
instruments, money market instruments regulated by the Reserve Bank of India, and bonds
issued by the Government or such other bodies as may be specified by the SEBI.

ISSUER:
A company or a body corporate or a statutory corporation or a multilateral institution or a trust
registered with the Board as a Real Estate Investment Trust (REIT) or an Infrastructure
Investment Trust (InvIT), authorised to issue non-convertible securities and/or commercial
paper under the relevant laws and in accordance with these regulations and seeks to list its
non-convertible securities, with any recognized stock exchange(s).

NON-CONVERTIBLE SECURITIES:
These are debt securities, non-convertible redeemable preference shares, perpetual non-
cumulative preference shares, perpetual debt instruments and any other securities as specified
by the Board.

PRIVATE PLACEMENT:
It is an offer or invitation to subscribe or issue of non-convertible securities to a select group
of persons by a company (other than by way of public offer), which satisfies the applicable
conditions specified in Section 42 of the Companies Act, 2013.

PUBLIC ISSUE:
It is an offer or invitation by an issuer to the public to subscribe to its debt securities and/or
nonconvertible redeemable preference shares which is not in the nature of a private placement.

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SECURED DEBT SECURITIES:

These are such debt securities which are secured by creation of a charge on the properties or
assets of the issuer or its subsidiaries or its holding companies or its associate companies
having a value which is sufficient for the due repayment of principal and payment of interest
thereon.

ELECTRONIC BOOK PROVIDER PLATFORM:

An electronic platform for private placement of non-convertible securities provided by a
recognized stock exchange(s) or a recognised depository, pursuant to obtaining approval from
the Board.

NON-CONVERTIBLE REDEEMABLE PREFERENCE SHARE:

A preference share which is redeemable in accordance with the relevant provisions of the
Companies Act, 2013 and does not include a preference share which is convertible into or
exchangeable with equity shares of the issuer at a later date, at the option of the holder or
not.

PERPETUAL DEBT INSTRUMENT:

A perpetual debt instrument issued in accordance with the guidelines framed by the Reserve
Bank of India.

PERPETUAL NON-CUMULATIVE PREFERENCE SHARE:

A perpetual non-cumulative preference share issued in accordance with the guidelines framed
by the Reserve Bank of India.

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SEBI (ISSUE AND LISTING OF NON-CONVERTIBLE SECURITIES) REGULATIONS, 2021

GENERAL CONDITIONS AND ELIGIBILITY CRITERIA [Chapter II]

APPLICABILITY OF THIS CHAPTER (REGULATION 4)

This chapter shall apply to the issuance and listing of:
(a) debt securities and non-convertible redeemable preference shares by an issuer by way of public
issuance;
(b) non-convertible securities by an issuer on private placement basis.

Unless otherwise provided in these regulations, an issuer making an offer of nonconvertible

securities shall satisfy the conditions of these regulations as on:
(a) date of filing of the draft offer document with the Board or stock exchange(s); and
(b) date of filing the offer document with the Registrar of Companies.

ELIGIBLE ISSUERS (REGULATION 5)

1. The issuer shall not make an issue of non-convertible securities if as on the date of filing of
draft offer document or offer document:
(a) The issuer, any of its promoters, promoter group or directors are debarred from accessing the
securities market or dealing in securities by the SEBI;
(b) Any of the promoters or directors of the issuer is a promoter or director of another company
which is debarred from accessing the securities market or dealing in securities by the SEBI;
(c) The issuer or any of its promoters or directors is a wilful defaulter;
(d) Any of the promoters or whole-time directors of the issuer is a promoter or whole-time director
of another company which is a wilful defaulter;
(e) Any of its promoters or directors is a fugitive economic offender; or
(f) Any fine or penalties levied by the SEBI/Stock Exchanges is pending to be paid by the issuer
at the time of filing the offer document.
However, the:

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(i) Restrictions mentioned at (b) and (d) above shall not be applicable in case of a person who
was appointed as a director only by virtue of nomination by a debenture trustee in other
company.
(ii) Restrictions mentioned in (a) and (b) above shall not be applicable if the period of debarment
is over as on date of filing of the draft offer document with the SEBI.
(iii) Restrictions mentioned at (c) and (d) shall not be applicable in case of private placement of
nonconvertible securities.
2. Issuer shall not make a public issue of non-convertible securities if as on the date of filing of
draft offer document or offer document, the issuer is in default of payment of interest or
repayment of principal amount in respect of non-convertible securities, if any, for a period of
more than six months.

IN-PRINCIPLE APPROVAL (REGULATION 6)

The issuer shall make an application to one or more stock exchange(s) and obtain an in-
principle approval for listing of its non-convertible securities from the stock exchange(s) where
such securities are proposed to be listed. However, where the application is made to more than
one stock exchange, the issuer shall choose one among them as the designated stock exchange.

DEPOSITORIES (REGULATION 7)
The issuer shall enter into an arrangement with a depository for dematerialization of the non-
convertible securities in accordance with the Depositories Act, 1996 and also take such steps
to ensure that such securities are admitted on all the depositories.

DEBENTURE TRUSTEE (REGULATION 8)

The issuer shall appoint a debenture trustee in case of an issue of debt securities.

REGISTRAR TO THE ISSUE (REGULATION 9)

The issuer shall appoint a Registrar to the Issue, registered with SEBI. However, if the issuer
itself is a Registrar to the Issue, it shall not appoint itself as a Registrar to the Issue. Provided
further that the lead manager shall not act as a Registrar to the Issue in which it is also
handling the post-issue responsibilities.

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CREDIT RATING (REGULATION 10)

The issuer shall obtain credit rating from at least one credit rating agency, which shall be
disclosed in the offer document. However, where the credit ratings are obtained from more
than one credit rating agency for the issue, all the ratings, including the unaccepted ratings,
shall be disclosed in the offer document.

CREATION OF RECOVERY EXPENSE FUND (REGULATION 11):

The issuer shall create a recovery expense fund with the designated stock exchange, by
depositing such amount and in such form and manner as may be specified in the regulations.

ELECTRONIC ISSUANCES (REGULATION 12)

An issuer proposing to issue non-convertible securities through the on-line system of the stock
exchange and depositories shall comply with the relevant applicable requirements.

REGULATORY FEES (REGULATION 13):

In case of public issue of debt securities and/or non-convertible redeemable preference shares,
the issuer shall while filing a draft offer document with the stock exchange forward a soft
copy of the draft offer document to SEBI for its records along with regulatory fees.

In case of non -convertible securities issued on a private placement basis, the designated stock
exchange shall collect a regulatory fee.

RIGHT TO RECALL OR REDEEM PRIOR TO MATURITY (REGULATION 15)

An issuer making issuance of non-convertible securities shall:
(a) have the right to recall such securities prior to the maturity date (call option); or,
(b) shall have a right to provide such right of redemption of debt securities prior to the maturity
date (put option) to all the investors or only to retail investors.

Such right to recall non-convertible securities or redeem debt securities prior to the maturity
date shall be exercised in accordance with the terms of issue and detailed disclosure in this
regard shall be made in offer document including date from which such right is exercisable,

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period of exercise (which shall not be less than three working days) and redemption amount
(including the premium or discount at which such redemption shall take place).

In case of partial exercise of such right in accordance with the terms of the issue by the
issuer, it shall be done on proportionate basis only. No such right shall be exercisable before
the expiry of one year from the date of issue of such non-convertible securities. Issuer shall
send notice to all the eligible holders of such non-convertible securities and debenture trustee
at least twenty-one days before the date from which such right is exercisable.

Issuer shall also provide a copy of such notice to the stock exchange(s) where such
nonconvertible securities are listed for wider dissemination and shall make an advertisement in
an english national daily and regional daily having wide circulation, indicating the details of
such rights and eligibility of the holders who are entitled to avail such right. Issuer shall pay
interest at the rate of fifteen percent per annum for the period of delay, if any.

After the completion of the exercise of such right, the issuer shall:
(a) submit a report to the stock exchange(s) for public dissemination regarding the details of non-
convertible securities redeemed during the exercise period and details of redemption thereof;
(b) inform the debenture trustee regarding the debt securities redeemed during the exercise period
and details of redemption thereof; and
(c) inform the depositories for extinguishing the non-convertible securities that have been
redeemed.

The issuer shall send a notice regarding recall or redemption of non-convertible securities, prior
to maturity, to all the eligible holders of such securities and the debenture trustee(s), at least
twenty-one days before the date from which such right is exercisable and the notice to the
eligible holders shall be sent in the following manner:
(i) soft copy of such notice shall be sent to the eligible holders who have registered their email
address(es) either with the listed entity or with any depository; and
(ii) hard copy of the notice shall be sent to the eligible holders who have not registered their email
address(es) either with the listed entity or with any depository.

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The issuer shall simultaneously provide a copy of such notice to the stock exchange(s) where
the non-convertible securities of the issuer are listed, for dissemination on its website.

DEBENTURE REDEMPTION RESERVE/ CAPITAL REDEMPTION RESERVE (REGULATION 16)

The issuer shall create a debenture redemption reserve or capital redemption reserve in
accordance with the relevant provisions of the Companies Act, 2013.

INTERNATIONAL SECURITIES IDENTIFICATION NUMBER (REGULATION 17)

An issuer issuing non-convertible securities shall comply with the conditions relating to the
issue of International Securities Identification Number.

TRUST DEED (REGULATION 18)

The issuer and the debenture trustee shall execute the trust deed. Where an issuer fails to
execute the trust deed within the specified period, the issuer shall also pay interest of at least
2 percent per annum or such other rate, as specified by the SEBI to the holder of debt
securities, over and above the agreed coupon rate, till the execution of the trust deed.

Such trust deed shall consist of two parts:

(a) Part A containing statutory/standard information pertaining to the debt issue.
(b) Part B containing details specific to the particular debt issue.

The trust deed shall not contain any clause which has the effect of:
(a) Limiting or extinguishing the obligations and liabilities of the debenture trustees or the issuer
in relation to any rights or interests of the holders of the debt securities.
(b) Limiting or restricting or waiving the provisions of the Act, these regulations and circulars or
guidelines issued by the SEBI.
(c) Indemnifying the debenture trustees or the issuer for loss or damage caused by their act of
negligence or commission or omission.

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LISTING AGREEMENT (REGULATION 19)

Every issuer desirous of listing its non-convertible securities on a recognised stock exchange
shall execute an agreement with such stock exchange.

CONTINUOUS LISTING CONDITIONS (REGULATION 20)

All the issuers of non-convertible securities which are listed on stock exchange shall comply
with the listing regulations and/or such other conditions and disclosure requirements as may
be specified by the SEBI.

TRADING OF NON-CONVERTIBLE SECURITIES (REGULATION 21)

The trades in non-convertible securities listed on stock exchange shall be cleared and settled
through clearing corporation of stock exchange, subject to conditions as specified by the SEBI.

DISTRIBUTION OF DIVIDEND IN CASE OF DEFAULT IN PAYMENT OF INTEREST OR

REDEMPTION OF DEBT SECURITIES (REGULATION 22)
Where the issuer has defaulted in payment of interest or redemption of debt securities or in
creation of security in accordance with the terms of the offer document, any distribution of
dividend shall require approval of the debenture trustee.

OBLIGATIONS OF THE ISSUER (REGULATION 23)

 The issuer shall treat all applicants to an issue of non-convertible securities in a fair and
equitable manner.
 The issuer shall not employ any device, scheme, or artifice to defraud in connection with issue
or subscription or distribution of non-convertible securities which are listed or proposed to be
listed on the recognized stock exchange.
 The issuer shall apply for SCORES authentication in the format specified by the SEBI and
shall use the same for all issuance of nonconvertible securities.
 In case of a public issue, the issuer shall provide all required information/ documents to the
lead managers for conducting the due diligence, in the form and manner as may be specified
by the SEBI.

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 The issuer shall ensure that the secured debt securities are secured by 100% security cover or
higher security cover as per the terms of the offer document and/or Debenture Trust Deed,
sufficient to discharge the principal amount and the interest thereon at all times for the issued
debt securities.

OBLIGATIONS OF DEBENTURE TRUSTEE (REGULATION 24)

 The debenture trustee shall be vested with the requisite powers for protecting the interest of
holders of debt securities including a right to appoint a nominee director on the Board of the
issuer in consultation with holders of such debt securities and in accordance with applicable
law.
 The debenture trustees shall supervise the implementation of the conditions regarding creation
of security for the debt securities, creation of recovery expense fund and debenture redemption
reserve, as applicable.
 The debenture trustee shall monitor the security cover in relation to secured debt securities in
the manner as specified by the Board.

PUBLIC ISSUE AND LISTING OF DEBT SECURITIES AND NON CONVERTIBLE REDEEMABLE
PREFERENCE SHARES [CHAPTER III]

CONDITIONS FOR PUBLIC ISSUE:

The issuer shall appoint one or more merchant bankers registered with the SEBI, as lead
manager to the issue. Such lead manager shall not issue any due diligence certificate, in relation
to the issue of such debt securities and/or non-convertible redeemable preference shares. In
case there is more than one lead manager, at least one lead manager to the issue shall not be
an associate.

The issuers shall not make a public issue of debt securities and non-convertible redeemable
preference shares for providing loan to or acquisition of shares of any entity who is part of the
promoter group or group companies. However, where the issuer is a Non-Banking Finance
Company, Housing Finance Company or a Public Financial Institution the aforesaid restriction

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shall not apply and appropriate disclosures shall be made as specified in the Schedule I of
these regulations.

ISSUANCE OF GREEN DEBT SECURITIES

Green debt security means a debt security issued for raising funds subject to the conditions
as may be specified by the Board from time to time, to be utilised for project(s) and/ or
asset(s) falling under any of the following categories:
(i) renewable and sustainable energy including wind, bioenergy, other sources of energy which use
clean technology,
(ii) clean transportation including mass/public transportation,
(iii) climate change adaptation including efforts to make infrastructure more resilient to impacts of
climate change and information support systems such as climate observation and early warning
systems,
(iv) energy efficiency including efficient and green buildings,
(v) sustainable waste management including recycling, waste to energy, efficient disposal of
wastage,
(vi) sustainable land use including sustainable forestry and agriculture, afforestation,
(vii) biodiversity conservation,
(viii) pollution prevention and control (including reduction of air emissions, greenhouse gas control,
soil remediation, waste prevention, waste reduction, waste recycling and energy efficient or
emission efficient waste to energy) and sectors mentioned under the India Cooling Action Plan
launched by the Ministry of Environment, Forest and Climate Change,
(ix) circular economy adapted products, production technologies and processes (such as the design
and introduction of reusable, recyclable and refurbished materials, components and products,
circular tools and services) and/or eco efficient products,
(x) blue bonds which comprise of funds raised for sustainable water management including clean
water and water recycling, and sustainable maritime sector including sustainable shipping,
sustainable fishing, fully traceable sustainable seafood, ocean energy and ocean mapping,
(xi) yellow bonds which comprise of funds raised for solar energy generation and the upstream
industries and downstream industries associated with it,

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(xii) transition bonds which comprise of funds raised for transitioning to a more sustainable form
of operations, in line with India’s Intended Nationally Determined Contributions, and
Explanation: Intended Nationally Determined Contributions (INDCs) refer to the climate targets
determined by India under the Paris Agreement at the Conference of Parties 21 in 2015, and
at the Conference of Parties 26 in 2021, as revised from time to time.
(xiii) any other category, as may be specified by the Board from time to time.

FILING OF DRAFT OFFER DOCUMENT

 Issuer shall not make a public issue of debt securities and/or non-convertible redeemable
preference shares unless a draft offer document has been filed with all the stock exchanges.
 The draft offer document filed with the stock exchange shall be made public by posting the
same on the website of the stock exchange for seeking public comments for a period of 7
working days from the date of filing the draft offer document with stock exchange.
 The draft offer document shall also be displayed on the website of the issuer and the lead
manager.
 The lead manager shall ensure that the draft offer document clearly specifies the names and
contact particulars including the postal and email address and telephone number of the
compliance officer who shall be a Company Secretary of the issuer.
 The lead manager shall ensure that all comments received on the draft offer document are
suitably addressed prior to the filing of the offer document with the Registrar of Companies.
 The lead manager shall, prior to filing of the offer document with the Registrar of Companies,
furnish to the SEBI a due diligence certificate as per the regulations.

DISCLOSURES IN THE OFFER DOCUMENT

The offer document shall contain all material true, fair and adequate disclosures which are
necessary for the subscribers of the debt securities and non-convertible redeemable preference
shares to take an informed investment decision and shall not omit/ include any material fact

ADVERTISEMENTS FOR PUBLIC ISSUES

The issuer shall make an advertisement in an english national daily and regional daily with
wide circulation, on or before the issue opening date.

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PROHIBITION ON PAYMENT OF INCENTIVES

Any person connected with the issue shall not offer any incentive, whether direct or indirect,
in any manner, whether in cash or kind or services or otherwise to any person for making an
application in the issue, except for fees or commission for services rendered in relation to the
issue.

PRICE DISCOVERY AND BOOK BUILDING

The issuer may determine the price and/or coupon of debt securities and nonconvertible
redeemable preference shares in consultation with the lead manager. The issue of debt securities
and non-convertible redeemable preference shares may be at fixed price and fixed coupon or
the issuer may determine the demand and price or coupon of the debt securities and non -
convertible redeemable preference shares through book building process.

MINIMUM SUBSCRIPTION
Minimum subscription for a public issue shall not be less than 75% of the base issue size or
as may be specified by the SEBI. In the event of non-receipt of minimum subscription, all
blocked application money shall be unblocked forthwith, but not later than 8 working days
from the date of closure of the issue or such time as may be specified by the SEBI.

ALLOTMENT OF SECURITIES AND PAYMENT OF INTEREST

The issuer shall ensure that in case of listing of debt securities and non-convertible redeemable
preference shares issued to public, allotment of securities offered to public shall be made within
such timeline as may be specified by the SEBI.

Where the debt securities and non-convertible redeemable preference shares are not allotted
and/or application monies are not unblocked within the period stipulated, the issuer shall
undertake to pay interest at the rate of 15% per annum to the investors.

UNDERWRITING
A public issue of debt securities and non-convertible redeemable preference shares may be
underwritten by eligible intermediaries, either in full or part.

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MANDATORY LISTING OF A PUBLIC ISSUE OF DEBT SECURITIES AND NON-CONVERTIBLE

REDEEMABLE PREFERENCE SHARES
An issuer desirous of making an offer of debt securities and non-convertible redeemable
preference shares to the public shall make an application for listing to stock exchange.

OTHER OBLIGATIONS OF THE LEAD MANAGER

 The lead manager shall not employ any device, scheme, or artifice to defraud in connection
with issue or subscription or distribution.
 The lead manager shall ensure that the secured debt securities are secured by hundred percent
security cover or higher security cover as per the terms of the offer document and/or Debenture
Trust Deed, sufficient to discharge the principal amount and the interest thereon at all times
for the issued debt securities.
 The lead manager shall ensure payment of additional interest by the issuer in accordance with
these regulations in case of non-allotment of debt securities and non-convertible redeemable
preference shares.

DUE DILIGENCE BY DEBENTURE TRUSTEE

The debenture trustee shall, at the time of filing the draft offer document with the stock
exchange and prior to opening of the public issue of debt securities, furnish to the SEBI and
stock exchange, a due diligence certificate.

LISTING OF PRIVATE PLACEMENT OF DEBT SECURITIES AND NON-CONVERTIBLE

REDEEMABLE PREFERENCE SHARES [CHAPTER IV]

LISTING APPLICATION
Where the issuer has disclosed the intention to seek listing of debt securities and nonconvertible
redeemable preference shares issued on private placement basis, the issuer shall forward the
listing application along with the disclosures as per this regulation to the stock exchange within
such days as may be specified by the SEBI from the date of closure of the issue.

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ALLOTMENT OF SECURITIES
The issuer shall ensure allotment of debt securities and non-convertible redeemable preference
shares issued on a private placement basis and credit to the dematerialised account of the
investors, is made within such time as may be specified by the SEBI.

ISSUANCE AND LISTING OF PERPETUAL DEBT INSTRUMENTS, PERPETUAL NON-

CUMULATIVE PREFERENCE SHARES AND SIMILAR INSTRUMENTS [CHAPTER V]

GENERAL CONDITIONS
An issuer may issue perpetual debt instruments, perpetual non-cumulative preference shares
and instruments of similar nature in compliance with the guidelines issued by the Reserve Bank
of India and/or any other relevant laws applicable to them.

LISTING OF COMMERCIAL PAPER [CHAPTER VI]

 Issuers desirous of listing of commercial paper shall comply with the conditions as may be
specified by the SEBI from time to time.
 The designated stock exchange shall collect a regulatory fee as specified from an issuer of
commercial paper at the time of their listing.
 The issuer shall apply for SCORES authentication in the format specified by the Board and
shall use the same for issuance and listing of commercial paper.

PERIOD OF SUBSCRIPTION (REGULATION 33A)

1. A public issue of debt securities or, non-convertible redeemable preference shares shall be kept
open for a minimum of three working days and a maximum of ten working days.
2. In case of a revision in the price band or yield, the issuer shall extend the bidding (issue)
period disclosed in the offer document for a minimum period of three working days. Provided
that the overall bidding (issue) period shall not exceed 10 working days.

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3. In case of force majeure, banking strike or similar circumstances, the issuer may, for reasons
to be recorded in writing, extend the bidding (issue) period disclosed in the offer document.
Provided that the overall bidding (issue) period shall not exceed 10 working days.

ROLE OF A COMPANY SECRETARY

A Company Secretary is a vital link between the company and its Board of Directors,
shareholders, government and regulatory authorities and all other stakeholders. A Company
Secretary can play an important role in fulfilling the role as a governance professional for
companies with listed debt securities.

The Company Secretary monitors, manages the information updates and conducts regular
assessment to ensure that company remains abreast of the regulatory standards.

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CHAPTER 11 - LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS

SEBI (LISTING OBLIGATIONS AND DISCLOSURES REQUIREMENTS) REGULATIONS, 2015

Unless otherwise provided, these regulations shall apply to the listed entity which has listed
any of the following designated securities on recognised stock exchange(s):
a) specified securities listed on main board or SME Exchange or institutional trading
platform;
b) non-convertible debt securities, non-convertible redeemable preference shares, perpetual
debt instrument, perpetual non-cumulative preference shares;
c) Security receipts;
d) Indian depository receipts;
e) securitised debt instruments;
f) units issued by mutual funds;
g) any other securities as may be specified by SEBI.

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Company desirous of listing its securities shall enter into a listing agreement with the stock
exchange. Existing listed entities are required to execute a fresh listing agreement within 6
months from date of notification of SEBI Listing Regulations.

According to Section 2 (52) of the Companies Act, 2013, listed company means a
company which has any of its securities listed on any recognised stock exchange. This
means that if a private limited company has its debt securities listed on any recognised
stock exchange, then such company is under the ambit of listed company category for
complying with the Companies Act, 2013 and rules and regulation made thereunder.

According to SEBI (LODR) Regulations, 2015 "listed entity" means an entity which has
listed, on a recognised stock exchange(s), the designated securities issued by it or
designated securities issued under schemes managed by it, in accordance with the listing
agreement entered into between the entity and the recognised stock exchange(s).

REGULATIONS

ONE TIME COMPLIANCES

Regulations Particulars
6(1) A listed entity shall appoint a CS as the Compliance Officer

7(1) The listed entity shall appoint a share transfer agent or the listed entity
registered with SEBI as Category II share transfer agent in case of share
transfer facility in house.
9 The listed entity shall have a policy for preservation of documents, approved by
its Board of Directors.

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QUARTERLY COMPLIANCES

Regulation Particulars Time Limit

13(3) The listed entity shall file with the recognised within 21 days from end of
stock exchange, a statement giving the quarter
number of investor complaints pending at the
beginning of the quarter, those received during
the quarter, disposed of during the quarter and
those remaining unresolved at the end of the
quarter

27 The listed entity shall submit a quarterly within 21 days from close of the
compliance report on corporate governance in quarter
the format as specified by SEBI from time to
time to the recognized stock exchanges.

31(1))(b) The listed entity shall submit to the stock within 21 days from the end of
exchange(s) a statement showing holding each quarter
of securities and shareholding pattern
separately for each class of securities, in the
format specified by SEBI from time to time

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32(1) The listed entity shall submit to the stock Quarterly Basis to the stock
exchange a statement of deviation or variation exchange till such time the
in the utilization of issue proceeds as stated issue proceeds have been
on the objects clause of the offer document fully utilized or the purpose
and the actual utilization of those funds. for which these proceeds
were raised has been
achieved within forty-five days
from the end of each quarter.

33(3) The listed entity shall submit quarterly and within forty-five days of end of
year-to-date financial results to the stock each quarter, other than the last
exchange quarter.

HALF YEARLY COMPLIANCES

Regulation Particulars Time Limit

7(3) The listed entity shall submit a compliance Within one month of end of each
certificate to the exchange, duly signed by half of the financial year.
both the compliance officer of the listed
entity and the authorized representative
of the share transfer agent

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23(9) The listed entity shall submit to the stock fifteen days from the date of
exchange, disclosures of related party on publication of its standalone and
consolidated basis. Provided that a ‘high consolidated financial results:
value debt listed entity’ shall submit such
disclosures along with its standalone financial Provided further that the listed
results for the half year. entity shall make such
disclosures every six months on
the date of publication of its
standalone and consolidated
financial results with effect from
April 1, 2023.
33(3) The listed entity shall also submit as part of Once in six months
its standalone or consolidated financial
results for the half year a statement of
assets and liabilities and a statement of cash
flows by way of a note.

40(9) The listed entity shall ensure that the share within one month of the end of
transfer agent and/or the in-house share each half of the financial year
transfer facility, as the case may be, produces
a certificate from a practicing company
secretary

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YEARLY COMPLIANCES

Regulatio Particulars Time Limit

n
7(3) The listed entity shall submit a compliance within thirty days from the end
Complianc certificate to the exchange, duly signed by both of the financial year. Earlier the
e the compliance officer of the listed entity and same was to be submitted within
Certificat the authorised representative of the share one month of end of each half
e transfer agent. of the financial year.

14 The listed entity shall pay all such fees or within 30 days of the end of
charges, as applicable, to the recognised stock financial year
exchange(s), in the manner specified by SEBI
or the recognised stock
Exchanges.

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33(3) The listed entity shall submit annual audited within 60 days from the end of
standalone financial results with audit report the financial year
and Statement on Impact of Audit
Qualifications applicable only for audit report
with modified opinion to the stock exchange.
If listed entity has subsidiaries, it shall, while
submitting annual audited standalone financial
results, also submit annual audited
consolidated financial results along with the
audit report and Statement on Impact of Audit
Qualifications applicable only for audit report
with modified opinion.
In case of audit reports with unmodified
opinion(s), the listed entity shall furnish a
declaration to that effect to the Stock
Exchange while publishing the annual audited
financial results.
The listed entity shall also submit the audited
or limited reviewed financial results in respect
of the last quarter along-with the results for
the entire financial year)

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34 The listed entity shall submit the annual report Not later than the day of
along with the Notice of the Annual General commencement of dispatch to
Meeting to the stock exchange. its shareholders.

Amongst others, the annual report shall also

consist the following:
audited financial statements i.e. balance sheets,
profit and loss accounts etc and Statement on
Impact of Audit Qualifications as stipulated in
regulation 33(3)(d), if applicable.
The requirement of submitting a business
responsibility report shall be discontinued after
the financial year 2021–22 and thereafter, with
effect from the financial year 2022–23, the top
one thousand listed entities based on market
capitalization shall submit a business
responsibility and sustainability report
describing quantitative and standardized
disclosures on ESG parameters to enable
comparability across companies, sectors and
time, shall form part of the Annual Report.

34(1)(b) In case any changes to the annual report, the within 48 hours after the annual
revised copy along with the details of and general meeting
explanation for the changes shall be sent

36 The listed entity shall send annual report to the Twenty one days before AGM (in
holders of securities soft or hard copy)

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40(9) The listed entity shall ensure that the share within 30 days from the end of
transfer agent and/or the in-house share financial year
transfer facility, as the case may be, produces
a certificate from a practicing company
secretary

24A Every listed entity and its material unlisted within 60 days from end of each
Secretaria subsidiaries incorporated in India shall undertake financial year
l Audit secretarial audit and shall annex a secretarial
and audit report given by a company secretary in
Secretaria practice, in such form as specified, with the
l annual report of the listed entity.
Complianc
e Report

EVENT BASED COMPLIANCES

Regulation Particulars Due date

7(5) The listed entity shall intimate the Within 7 days of Agreement with
appointment of Share Transfer Agent, to the RTA
stock exchange(s)
28(1) The listed entity shall obtain In-principle Prior to issuance of Security
approval from recognised stock exchange

29(1)(a) Prior Intimations of Board Meeting for At least 5 clear days in

read along financial Result viz. quarterly, half yearly or advance (excluding the date of
with proviso annual, to the stock exchange(s) the intimation and the date of
to 29 (2) the meeting)

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29(1) (b), Prior Intimations of Board Meeting for At least 2 working days in
(c),(d), (e) Buyback, Voluntary delisting, Fund raising by advance
& (f) read way of FPO, Rights Issue, ADR, GDR, QIP,
along with FCCB, Preferential issue, debt issue or any
29 (2) other method, Declaration/recommendation of
dividend, issue of convertible securities
carrying a right to subscribe to equity shares
or the passing over of dividend, proposal for
declaration of Bonus securities etc., to the
stock exchange(s)
29(3) Prior Intimations of Board Meeting for At least 11 clear working days
alteration in nature of Securities, alteration in in Advance
the date on which interest on
debentures/bonds/redemption amount, etc.
shall be payable to the stock exchange(s)
30(6) Disclosure of Price Sensitive Information to the Not later than twenty four hours
stock exchange(s) as per Part A of Schedule III
31A (8) The listed entity shall disclose to the stock within 24 hours from the
exchange the deemed material events i.e., occurrence of the event
receipt of request for re-classification by the
listed entity from the promoter(s) seeking re-
classification; Minutes of the board meeting
considering such request which would include
the views of the board on the request; etc.

31(1)(a) The listed entity shall submit to the stock One day prior to listing of
exchange(s) a statement showing holding Securities
of securities and shareholding pattern
separately for each class of securities prior
to listing of securities

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31(1)(c) The listed entity shall submit to the stock Within 10 days of any change in
exchange(s) statement showing holding capital
of securities and shareholding pattern Structure exceeding 2% of the
separately for each class of securities in total paid-up share capital.
case of Capital Restructuring

37(2) The listed entity shall file draft Scheme of Prior approval before filing with
Arrangement to the stock exchange(s) Court
39(2) The listed entity shall issue certificates or within thirty days from the date
receipts or advices, as applicable, of of such lodgement but only in
subdivision, split, consolidation, renewal, dematerialised form.
exchanges, endorsements, issuance of
duplicates thereof or issuance of new
certificates or receipts or advices, as applicable,
in cases of loss or old decrepit or worn out
certificates or receipts or advices, as applicable
39(3) The listed entity shall submit information with Within two days of getting
respect to loss of share certificates and issue information.
of the duplicate certificates to the stock
exchange

40(1) Proviso Transfer or transmission or transposition of Only in dematerialized form with

securities a depository. Further,
transmission or transposition of
securities held in physical or
dematerialised form shall be
effected only in demat form.
40(3) The listed entity shall register transfers of its within fifteen days from the date
securities in the name of the transferee(s) of such receipt of request for
and issue certificates or receipts or advices, as transfer.
applicable, of transfers; or issue any valid
objection or intimation to the transferee or
transferor, as the case may be,

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42(2) The listed entity shall intimate the record date or date of closure of transfer books to

all the stock exchange(s) where it is listed and also where stock derivatives are
available on the stock of the listed entity or where listed entity’s stock form part
of an index on which derivatives are available.

42(2) In case of Right Issue At least three working days in

advance (excluding the date of
intimation and record date)

42(2) Other than Right Issue At least 7 clear working days in

advance (excluding the date of
intimation and record date)

43A Dividend Distribution Policy by the top one To formulate a dividend

thousand listed entities based on market distribution policy which shall be
capitalization (calculated as on March 31 of disclosed in their annual reports
every financial year) and on their websites and also a
web-link shall also be provided in
their annual reports

42(2) The listed entity shall intimate the record date At least 7 clear working days
or date of closure of transfer books to all the in advance
stock exchange(s)
42(3) The listed entity shall give notice to stock At least 5 clear working days
exchange(s) of Record date for declaring in advance
dividend and/or cash Bonus
44(3) The listed entity shall submit to the stock Within two working days of
exchange details regarding voting results by conclusion of its General Meeting
Shareholders
45(3) The listed entity shall allowed to change its Prior approval from Stock
name Exchange(s)

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46 The listed entity shall maintain a functional within two working days from
website containing the basic information about the date of change in content.
the listed entity and update any change in the
content of its website.

47 – Now the listed entity will not be required to

Advertisemen publish the following:
ts 1. Notice of meeting of the board of directors
in where financial results shall be discussed.
Newspapers 2. Statements of deviation(s) or variation(s)
as specified in regulation
32 (1).

Note: as per Regulation 36(4), the information and documents made by the listed entity-
(a) to the stock exchanges shall be in XBRL; and
(b) to the stock exchanges and on its website, shall be in a format that allows users to find
relevant information easily through a searching tool.

BUSINESS RESPONSIBILITY AND SUSTAINABILITY REPORTING BY LISTED ENTITIES

SEBI came out with disclosure requirements under Business Responsibility and Sustainability
Report (BRSR) covering ESG (Environmental, Social and Governance) parameters.

SEBI has introduced new reporting requirements on ESG parameters called the Business
Responsibility and Sustainability Report (BRSR). The BRSR is accompanied with a guidance
note to enable the companies to interpret the scope of disclosures.

The BRSR seeks disclosures from listed entities on their performance against the nine principles
of the ‘National Guidelines on Responsible Business Conduct’ (NGBRCs) and reporting under
each principle is divided into essential and leadership indicators. The essential indicators are
required to be reported on a mandatory basis while the reporting of leadership indicators is on
a voluntary basis. Listed entities should endeavour to report the leadership indictors also.

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The BRSR is intended towards having quantitative and standardized disclosures on ESG
parameters to enable comparability across companies, sectors and time. Such disclosures will
be helpful for investors to make better investment decisions. The BRSR shall also enable
companies to engage more meaningfully with their stakeholders, by encouraging them to look
beyond financials and towards social and environmental impacts.

The filing of BRSR shall be mandatory for the top 1000 listed companies (by market
capitalization) with effect from the financial year 2022-2023 and shall replace the existing
Business Responsibility Report (BRR). Filing of BRSR is voluntary for the financial year 2021-
22.

REGULATION 31A OF SEBI (LODR) REGULATIONS, 2015 – RECLASSIFICATION OF

PROMOTER & PROMOTER GROUP SHAREHOLDERS

1. Promoter shall apply to Company for reclassification along with the supporting documents, if
any.
2. Intimation to Exchange about receipt of such request from the promoter has to be made by
the Company within 24 hours of receipt of such application.
3. The Board of Directors of the listed entity shall analyse the request and place the same before
the shareholders in a general meeting for approval along with their views. There shall be a time
gap of at least three months but not exceeding six months between the date of board meeting
and the shareholders meeting considering the request for reclassification.
4. Outcome of board meeting shall be submitted to the Exchange within 24 hours of the
conclusion of board meeting in which resolution regarding reclassification is approved.
5. The request of the promoter(s) seeking re-classification is required to be approved in the
general meeting by an ordinary resolution in which the promoter(s) seeking reclassification and
persons related to the promoter(s) seeking re-classification shall not vote to approve such re-
classification request. The Outcome of the General Meeting shall be submitted to the Exchange
as required under regulations applicable to the General Meetings.

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6. After obtaining shareholders’ approval in General Meeting, Company will submit the application
for reclassification within 30 days from the date of approval by shareholders in the General
Meeting, to the Stock Exchange.
7. Additionally, disclosure of the fact that such application has been filed with the Exchanges
shall be submitted to the Exchange as intimation of material event within 24 hours of the
filing of such application.
8. Exchange shall process the application subject to the application being complete in all respects
and compliant with all applicable regulations.
9. In case of incomplete applications, company shall be provided opportunity to rectify the
deficiencies. If the deficiencies are not rectified within 30 days of intimation of the same to
the Company, the application shall be liable to be rejected and the processing fee paid by the
company will be forfeited.
10. Letter of acceptance shall be issued to the company by the Exchange to effect the
reclassification in the shareholding pattern subject to compliance with applicable SEBI
regulations.
11. After Exchange approval / rejection of the reclassification application, same is also required to
be disclosed as material event within 24 hours of communication of decision of the Exchange.

SIMPLIFICATION OF PROCEDURE AND STANDARDIZATION OF FORMATS OF DOCUMENTS

FOR ISSUANCE OF DUPLICATE SECURITIES CERTIFICATES
SEBI has simplified the procedure and documentation requirements for issuance of duplicate
securities.
The requirements are as specified below:
1. Submission by the security holder of copy of FIR including e-FIR/Police complaint/Court
injunction order/copy of plaint, necessarily having details of the securities, folio number,
distinctive number range and certificate numbers.
2. Issuance of advertisement regarding loss of securities in a widely circulated newspaper.
However, there shall be no requirement to comply with above mentioned Para 1 and 2, if the
value of securities as on the date of submission of application, along with complete
documentation as prescribed by the SEBI does not exceed Rs. 5 Lakhs.

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3. Submission of Affidavit and Indemnity bond as per the format prescribed by the SEBI. There
shall be no requirement of submission of surety for issuance of duplicate securities.
4. In case of non-availability of Certificate Nos./Distinctive Nos./ Folio nos., the RTA (upon written
request by the security holder) shall provide the same, to the security holder only where the
signature and the address of the security holder matches with the RTA / listed company’s
records. In case the signature and/or the address do not match, the security holder shall first
comply with the KYC procedure and then only the details of the securities shall be provided
to the security holder by the RTA/listed company.

CORPORATE GOVERNANCE UNDER SEBI (LODR) REGULATIONS, 2015

The listed entities which has listed its specified securities on any recognised stock exchange(s)
either on the main board or on SME Exchange or on institutional trading platform has to
comply with certain corporate governance provisions which are specified in Regulations 17 to 27
& 34(3) of the Listing Regulations.

SEBI (LODR) Regulations, 2015 shall also apply to a listed entity which has listed non-
convertible securities on recognised stock exchange(s). 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.

The regulation 15 and regulation 16 to regulation 27 of SEBI (LODR) Regulations, 2015, w.r.t.
the corporate governance provisions 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 Rs. 500 crore and above.

However, in case an entity that has listed its non-convertible debt securities triggers the
specified threshold of Rs. 500 crore during the course of the year, it shall ensure compliance
with these provisions within six months from the date of such trigger.

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Further, it has been provided 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.

Exceptions
1. The listed entity having paid up equity share capital not exceeding rupees 10 crore and net
worth not exceeding rupees 25 crore, as on the last day of the previous financial year.
2. The listed entity which has listed its specified securities on the SME Exchange. However, for
other listed entities which are not companies, but body corporate or are subject to regulations
under other statues, the provisions of corporate governance provisions as specified shall apply
to the extent that it does not violate their respective statutes and guidelines or directives
issued by the relevant authorities.
3. The provisions as specified in regulation 17 shall not be applicable during the insolvency
resolution process period in respect of a listed entity which is undergoing corporate insolvency
resolution process under the Insolvency Code.
4. Regulations 18, 19, 20 and 21 shall not be applicable during the insolvency resolution process
period in respect of a listed entity which is undergoing corporate insolvency resolution process
under the Insolvency Code.

KEY PROVISIONS PERTAINING TO CORPORATE GOVERNANCE

COMPOSITION OF BOARD OF DIRECTORS

Board of Directors shall have optimum combination of executive and non-executive directors
with atleast one-woman director.

The Composition of board of directors of the listed entity shall be as follows:

CHAIRMAN COMPOSITION
- In case chairperson is executive director - not less than fifty percent of the board of directors
shall comprise of non executive directors.

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- In case chairperson is a non-executive director - at least one-third of the board of directors

shall comprise of independent directors
- In case listed entity does not have a regular non-executive chairperson at least half of the
board of directors shall comprise of independent directors
- In case non-executive chairperson is a promoter of the listed entity or is related to any promoter
or person occupying management positions at the level of board of director or at one level
below the board of directors at least half of the board of directors shall be independent
directors.

No listed entity shall appoint a person or continue the directorship of any person as a non-
executive director who has attained the age of 75 years unless a special resolution is passed
to that effect, in which case the explanatory statement annexed to the notice for such motion
shall indicate the justification for appointing such a person.

With effect from April 1, 2022, the top 500 listed entities shall ensure that the Chairperson
of the board of such listed entity shall –
- be a non-executive director;
- not be related to the Managing Director or the Chief Executive Officer as per the definition of
the term “relative” defined under the Companies Act, 2013.:

The board of directors of the top 1000 listed entities (with effect from April 1, 2019) and the
top 2000 listed entities (with effect from April 1, 2020) shall comprise of not less than six
directors.

Where the listed company has outstanding SR equity shares, atleast half of the board of
directors shall comprise of independent directors.

The listed entity shall ensure that approval of shareholders for appointment of a person on the
Board of Directors or as a manager is taken at the next general meeting or within a time
period of three months from the date of appointment, whichever is earlier.

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Further, the statement referred to under sub-section (1) of section 102 of the Companies Act,
2013, annexed to the notice to the shareholders, for considering the appointment or re-
appointment of such a person earlier rejected by the shareholders shall contain a detailed
explanation and justification by the Nomination and Remuneration Committee and the Board
of directors for recommending such a person for appointment or re-appointment.

Explanation: The top 1000 and 2000 entities shall be determined on the basis of market
capitalisation as at the end of the immediate previous financial year.

MEETINGS OF BOARD
Board shall meet at least four times a year, with a maximum time gap of one hundred and
twenty days between any two meetings.

QUORUM OF BOARD MEETING

The quorum for every meeting of the board of directors of the top 1000 listed entities with
effect from April 1, 2019 and of the top 2000 listed entities with effect from April 1, 2020
shall be one-third of its total strength or three directors, whichever is higher, including at least
one independent director.

KEY COMPLIANCE REQUIREMENTS FOR BOARD

- Periodically review compliance reports pertaining to all laws applicable to the listed entity, as
well as steps taken by the listed entity to rectify instances of non-compliances.
- Satisfy itself that plans are in place for orderly succession for appointment to the board of
directors and senior management.
- Lay down a code of conduct for all members of board of directors and senior management and
incorporate duties of independent directors.
- Recommend all fees or compensation, if any, paid to non-executive directors, including
independent directors and shall require approval of shareholders in general meeting.
- Lay down procedures to inform members of board of directors about risk assessment and
minimization procedures.

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- Responsible for framing, implementing and monitoring the risk management plan for the listed
entity.
- Performance evaluation of independent directors
- The minimum information to be placed before the board of directors is specified in Part A of
Schedule II.
- The chief executive officer and the chief financial officer shall provide the compliance certificate
to the board of directors as specified in Part B of Schedule II.

MAXIMUM NUMBER OF DIRECTORSHIPS

A person shall not be a director in more than eight listed entities with effect from April 1,
2019 and in not more than seven listed entities with effect from April 1, 2020. However a
person shall not serve as an independent director in more than seven listed entities.

Any person who is serving as a whole time director / managing director in any listed entity
shall serve as an independent director in not more than three listed entities.
[For the purpose of this sub-regulation, the count for the number of listed entities on which
a person is a director/independent director shall be only those whose equity shares are listed
on a stock exchange]

BOARD COMMITTEES UNDER THE SEBI LISTING REGULATIONS

AUDIT COMMITTEE

Composition
- The committee shall comprise of atleast three directors.
- Two-thirds of the members of audit committee shall be independent directors and all related
party transactions shall be approved by only independent directors on the Audit Committee.
- In case of a listed entity having outstanding SR equity shares, the audit committee shall only
comprise of independent directors.
- All members of audit committee shall be financially literate and at least one member shall
have accounting or related financial management expertise.

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Chairperson
- The chairperson shall be an independent director
- The Chairperson shall be present at Annual general meeting to answer shareholder queries.

Meetings
The committee shall meet at least four times in a year and not more than one hundred and
twenty days shall elapse between two meetings.

Quorum
The quorum for audit committee meeting shall either be two members or one third of the
members of the audit committee, whichever is greater, with at least two independent directors

Role of Committee
The role of the audit committee and the information to be reviewed by the audit committee
shall be as specified in Part C of Schedule II.

NOMINATION & REMUNERATION COMMITTEE

Composition
- The committee shall comprise of at least three directors;
- all directors of the committee shall be non executive directors;
- at least fifty percent of the directors shall be independent directors
- in case of a listed entity having outstanding SR equity shares, two thirds of the nomination
and remuneration committee shall comprise of independent directors.

Chairperson
- The Chairperson shall be an independent director. Provided that the chairperson of the listed
entity, whether executive or nonexecutive, may be appointed as a member of the Committee
and shall not chair such Committee.
- The Chairperson of may be present at the annual general meeting, to answer the shareholders'
queries; however, it shall be up to the chairperson to decide who shall answer the queries.

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Meetings
The committee shall meet at least once in a year.

Quorum
The quorum for a meeting of the nomination and remuneration committee shall be either two
members or one third of the members of the committee, whichever is greater, including at
least one independent director in attendance

Role of Committee
The role of the nomination and remuneration committee shall be as specified as in Part D of
the Schedule II

STAKEHOLDERS RELATIONSHIP COMMITTEE

Composition
- The committee shall comprise of atleast three directors
- The committee shall have at least one independent director,
- in case of a listed entity having outstanding SR equity shares, at least two thirds of the
Stakeholders Relationship Committee shall comprise of independent directors.

Chairperson
- The chairperson of this committee shall be a non-executive director.
- The Chairperson of the Stakeholders Relationship Committee shall be present at the annual
general meetings to answer queries of the security holders.

Meetings
The committee shall meet at least once in a year.

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Quorum
The quorum for a meeting of the nomination and remuneration committee shall be either two
members or one third of the members of the committee, whichever is greater, including at
least one independent director in attendance.

Role of Committee
The role of the Stakeholders Relationship Committee shall be as specified as in Part D of the
Schedule II.

RISK MANAGEMENT COMMITTEE

Composition
- The majority of members shall consist of members of the board of directors
in case of a listed entity having outstanding SR equity shares, at least two thirds of the Risk
Management Committee shall comprise of independent directors.

Chairperson
The Chairperson of the Risk management committee shall be a member of the board of
directors and senior executives of the listed entity may be members of the committee.

Meetings
The committee shall meet at least once in a year.

Quorum
-

Role of Committee
The board of directors shall define the role and responsibility of the Risk Management
Committee and may delegate monitoring and reviewing of the risk management plan to the
committee and such other functions as it may deem fit (such function shall specifically cover
cyber security)

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RISK MANAGEMENT COMMITTEE AS PER REGULATIONS 21

Applicability
The provisions of this regulation shall be applicable to top 1000 listed entities earlier the same
was to be applicable to top 500 listed entities.

Composition
The Risk Management Committee shall have minimum three members with majority of them
being members of the board of directors, including at least one independent director and in
case of a listed entity having outstanding SR equity shares, at least two thirds of the Risk
Management Committee shall comprise independent directors.

Number of meetings
At least twice in a year, and not more than one hundred and eighty days shall elapse between
any two consecutive meetings.

Quorum
Two members or one third of the members of the committee, whichever is higher, including
at least one member of the board of directors in attendance.

VIGIL MECHANISM

- The listed entity shall formulate a vigil mechanism for directors and employees to report
genuine concerns.
- The vigil mechanism shall provide for adequate safeguards against victimization of director(s)
or employee(s) or any other person who avail the mechanism.
- The vigil mechanism shall also provide for direct access to the chairperson of the audit
committee in appropriate or exceptional cases.

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RELATED PARTY TRANSACTIONS

Under Listing Regulations, 2015

Regulation 2(1) (zb) defines “related party” means a related party as defined under sub-
section (76) of section 2 of the Companies Act, 2013 or under the applicable accounting
standards.

Any person or entity forming a part of the promoter or promoter group or any person or any
entity, holding equity shares of 20% or more (10% w.e.f. 1st April, 2023) in the listed entity
either directly or on a beneficial interest basis, at any time, during the immediate preceding
financial year, shall be deemed to be a related party.

Revised definition of related party transaction under regulation 2(1)(zc)-

Related Party Transaction means a transaction involving a transfer of resources, services or
obligations between:
(i) a listed entity or any of its subsidiaries on one hand and a related party of the listed entity
or any of its subsidiaries on the other hand; or
(ii) a listed entity or any of its subsidiaries on one hand, and any other person or entity on the
other hand, the purpose and effect of which is to benefit a related party of the listed entity
or any of its subsidiaries, with effect from April 1, 2023;
regardless of whether a price is charged and a “transaction” with a related party shall be
construed to include a single transaction or a group of transactions in a contract:

Provided that the following shall not be a related party transaction:

(a) the issue of specified securities on a preferential basis, subject to compliance of the
requirements under the Securities and Exchange Board of India (Issue of Capital and Disclosure
Requirements) Regulations, 2018;
(b) the following corporate actions by the listed entity which are uniformly applicable/offered to
all shareholders in proportion to their shareholding:
i. payment of dividend;
ii. subdivision or consolidation of securities;

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iii. issuance of securities by way of a rights issue or a bonus issue; and

iv. buy-back of securities.
(c) acceptance of fixed deposits by banks/Non-Banking Finance Companies at the terms uniformly
applicable/offered to all shareholders/public, subject to disclosure of the same along with the
disclosure of related party transactions every six months to the stock exchange(s), in the
format as specified by the Board.
Provided further that this definition shall not be applicable for the units issued by mutual
funds which are listed on a recognised stock exchange(s).”

Under Companies Act, 2013

According to section 2 (76) “related party”, with reference to a company, means —
(i) a director or his relative;
(ii) a key managerial personnel or his relative;
(iii) a firm, in which a director, manager or his relative is a partner;
(iv) a private company in which a director or manager or his relative is a member or director;
(v) a public company in which a director and manager is a director and holds along with his
relatives, more than two per cent of its paid-up share capital;
(vi) any body corporate whose Board of Directors, managing director or manager is accustomed to
act in accordance with the advice, directions or instructions of a director or manager;
(vii) any person on whose advice, directions or instructions a director or manager is accustomed to
act;
(viii) Any body corporate which is -
a) a holding, subsidiary or an associate company of such company;
b) a subsidiary of a holding company to which it is also a subsidiary; or
c) an investing company or the venturer of the company;”
(ix) such other person as may be prescribed.

Policy on materiality of related party transactions

The listed entity shall formulate a policy on materiality of related party transactions and on
dealing with related party transactions.

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When will a transaction with a related party be material?

A transaction with a related party shall be considered material, if the transaction(s) to be
entered into individually or taken together with previous transactions during a financial year,
exceeds Rs. 1000 crore or 10% of the annual consolidated turnover of the listed entity as per
the last audited financial statements of the listed entity, whichever is lower.

With effect from July 01, 2019 a transaction involving payments made to a related party with
respect to brand usage or royalty shall be considered material if the transaction(s) to be
entered into individually or taken together with previous transactions during a financial year,
exceed five percent of the annual consolidated turnover of the listed entity as per the last
audited financial statements of the listed entity.

Question:
A company ABC Limited, listed entity, entered into a transaction with related party namely
XYZ Limited for an amount of Rs. 26 Crore. The turnover of ABC Limited is Rs. 240 Cr on
standalone basis and after considering consolidation of subsidiaries & associates is Rs. 290 Cr.
Please advise whether the transaction is related party transaction or not.
Answer:
A material related party transaction is transaction which either individually or taken together
with previous transactions during a financial year, exceeds 10% of the annual consolidated
turnover of the listed entity as per the last audited financial statements of the listed entity.
In the above case, ABC Limited has a consolidated turnover of Rs. 290 Cr and therefore,
threshold for materiality would be Rs. 29 Cr for a transaction with related party.

In case ABC Limited has not entered into any transaction during the financial year 2019-20,
which crosses the overall limit of Rs. 29 Cr including the existing Rs. 26 Cr transaction then
it is not material related party transaction.

Approval of Audit Committee

All related party transactions shall require prior approval of the audit committee

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Omnibus Approval: Audit committee may grant omnibus approval for related party transactions
proposed to be entered into by the listed entity subject to the following conditions-
(a) the audit committee shall lay down the criteria for granting the omnibus approval and such
approval shall be applicable in respect of transactions which are repetitive in nature;
(b) the audit committee shall satisfy itself regarding the need for such omnibus approval and that
such approval is in the interest of the listed entity;
(c) the omnibus approval shall specify as much details as possible. However, where the need for
related party transaction cannot be foreseen and aforesaid details are not available, audit
committee may grant omnibus approval for such transactions subject to their value not
exceeding rupees one crore per transaction.
(d) the audit committee shall review, at least on a quarterly basis, the details of related party
transactions entered into by the listed entity pursuant to each of the omnibus approvals given.
(e) Such omnibus approvals shall be valid for a period not exceeding one year and shall require
fresh approvals after the expiry of one year.

Approval of the shareholders

All material related party transactions shall require approval of the shareholders through
resolution and the related parties shall abstain from voting on such resolutions whether the
entity is a related party to the particular transaction or not.

Exceptions
The approval of Audit committee and shareholders shall not be required in the following cases:
(a) transactions entered into between two government companies;
(b) transactions entered into between a holding company and its wholly owned subsidiary.

CORPORATE GOVERNANCE REQUIREMENTS RELATED TO SUBSIDIARY

- Material Subsidiary shall mean a subsidiary, whose income or net worth exceeds ten percent
of the consolidated income or net worth respectively, of the listed entity and its subsidiaries
in the immediately preceding accounting year.

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- At least one independent director on the board of directors of the listed entity shall be a
director on the board of directors of an unlisted material subsidiary, whether incorporated in
India or not.
- The audit committee of the listed entity shall review the financial statements, in particular,
the investments made by the unlisted subsidiary.
- The minutes of the meetings of the board of directors of the unlisted subsidiary shall be
placed at the meeting of the board of directors of the listed entity.
- The management of the unlisted subsidiary shall periodically bring to the notice of the board
of directors of the listed entity, a statement of all significant transactions and arrangements
entered into by the unlisted subsidiary.
- As per Regulation 24, a listed entity shall not dispose of shares in its material subsidiary
resulting in reduction of its shareholding (either on its own or together with other subsidiaries)
to less than or equal to fifty percent without passing a special resolution in its General Meeting

Explanation - For the purpose of this regulation, the term “significant transaction or
arrangement” shall mean any individual transaction or arrangement that exceeds or is likely to
exceed ten percent of the total revenues or total expenses or total assets or total liabilities, as
the case may be, of the unlisted subsidiary for the immediately preceding accounting year.

Question:
ABC Limited is having three subsidiaries A Ltd, B Ltd and C Ltd. The consolidated income of
ABC Limited is Rs. 300 Cr and networth is Rs. 600 Cr.

The income and networth of A Ltd, B Ltd and C Ltd. are as follows –
Income Networth
A Ltd 10 Cr 65 Cr
B Ltd 45 Cr 14 Cr
C Ltd 10 Cr 18 Cr

Please examine if there is any material subsidiary of ABC Limited.

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Answer:
In the given case, 10 % of consolidated income and networth of ABC Limited would be 30 Cr
and 60 Cr respectively. Hence, A Ltd since crossed threshold in terms of Networth, would be
a material subsidiary. B Ltd since crossed threshold in terms of income, would be a material
subsidiary. C Ltd since does not cross either of the threshold, would not be a material
subsidiary.

SECRETARIAL AUDIT AND SECRETARIAL COMPLIANCE REPORT

- Every listed entity and its material unlisted subsidiaries incorporated in India shall undertake
secretarial audit and shall annex a secretarial audit report given by a company secretary in
practice, in such form as specified, with the annual report of the listed entity.
- Every listed entity shall submit a secretarial compliance report in such form as specified, to
stock exchanges, within sixty days from end of each financial year.

OBLIGATIONS IN RESPECT OF INDEPENDENT DIRECTORS

- No person shall be appointed or continue as an alternate director for an independent director
of a listed entity with effect from October 1, 2018.
- The maximum tenure of independent directors shall be in accordance with the Companies Act,
2013 and rules made thereunder.
- The appointment, re-appointment or removal of an independent director of a listed entity, shall
be subject to the approval of shareholders by way of a special resolution.
- The independent directors of the listed entity shall hold at least one meeting in a financial
year, without the presence of non-independent directors and members of the management and
all the independent directors shall strive to be present at such meeting.
- An independent director who resigns or is removed from the board of directors of the listed
entity shall be replaced by a new independent director by listed entity at the earliest but not
later than the immediate next meeting of the board of directors or three months from the
date of such vacancy, whichever is later.

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- No independent director, who resigns from a listed entity, shall be appointed as an executive /
whole time director on the board of the listed entity, its holding, subsidiary or associate
company or on the board of a company belonging to its promoter group, unless a period of one
year has elapsed from the date of resignation as an independent director.
- The listed entity shall familiarise the independent directors through various programmes about
the listed entity, including the following:
(a) nature of the industry in which the listed entity operates;
(b) business model of the listed entity;
(c) roles, rights, responsibilities of independent directors; and
(d) any other relevant information.
- Every independent director shall, at the first meeting of the board in which he participates as
a director and thereafter at the first meeting of the board in every financial year or whenever
there is any change in the circumstances which may affect his status as an independent
director, submit a declaration that he meets the criteria of independence.
- With effect from 1 January 2022, the top 1000 listed entities by market capitalization calculated
as on March 31 of the preceding financial year, shall undertake Directors and Officers insurance
(‘D and O insurance’) for all their independent directors of such quantum and for such risks
as may be determined by its board of directors.

OBLIGATION IN RESPECT OF EMPLOYEES INCLUDING SENIOR MANAGEMENT, KEY

MANAGERIAL PERSONS, DIRECTORS AND PROMOTERS
- Every director shall inform the listed entity about the committee positions he or she occupies
in other listed entities and notify changes as and when they take place.
- All members of the board of directors and senior management personnel shall affirm compliance
with the code of conduct of board of directors and senior management on an annual basis.
- Senior management shall make disclosures to the board of directors relating to all material,
financial and commercial transactions, where they have personal interest that may have a
potential conflict with the interest of the listed entity at large.

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Explanation - For the purpose of this sub-regulation, conflict of interest relates to dealing in
the shares of listed entity, commercial dealings with bodies, which have shareholding of
management and their relatives etc.

OUTCOME OF MEETINGS OF THE BOARD OF DIRECTORS

(to be disclosed to the Exchange within 30 minutes of the closure of the meeting)
a) dividends and/or cash bonuses recommended or declared or the decision to pass any dividend
and the date on which dividend shall be paid/dispatched;
b) any cancellation of dividend with reasons thereof;
c) the decision on buyback of securities;
d) the decision with respect to fund raising proposed to be undertaken
e) increase in capital by issue of bonus shares through capitalization including the date on which
such bonus shares shall be credited/dispatched;
f) reissue of forfeited shares or securities, or the issue of shares or securities held in reserve for
future issue or the creation in any form or manner of new shares or securities or any other
rights, privileges or benefits to subscribe to;
g) short particulars of any other alterations of capital, including calls;
h) financial results;
i) decision on voluntary delisting by the listed entity from stock exchange(s).

In case of board meetings being held for more than one day, the financial results shall be
disclosed within thirty minutes of end of the meeting for the day on which it has been
considered

MEETINGS OF SHAREHOLDERS AND VOTING

- The top 100 listed entities by market capitalization, determined as on March 31st of every
financial year, shall hold their annual general meetings within a period of five months from
the date of closing of the financial year.
- The top 100 listed entities shall provide one-way live webcast of the proceedings of the annual
general meetings.

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- The listed entity shall provide the facility of remote e-voting to its shareholders and submit
to the stock exchange, within 2 working days of conclusion of its General Meeting, details
regarding the voting results in the format specified by the Board.

LIABILITY OF A LISTED ENTITY FOR CONTRAVENTION

The listed entity or any other person thereof who contravenes any of the provisions of these
SEBI (LODR) Regulations, shall, in addition to liability for action in terms of the securities
laws, be liable for the following actions by the respective stock exchange(s), in the manner
specified in circulars or guidelines issued by the SEBI:
(a) imposition of fines;
(b) suspension of trading;
(c) freezing of promoter/promoter group holding of designated securities, as may be applicable, in
coordination with depositories.
(d) any other action as may be specified by the SEBI from time to time

COMPLIANCES UNDER SEBI LISTING REGULATIONS FOR THE LISTED ENTITY WHICH HAS
LISTED ITS NON-CONVER TIBLE DE BT SECURI TIE S OR NON-CONVERTIBLE REDEEMABLE
PREFERENCE SHARES OR BOTH

Regulation Title Intimation to Stock Exchanges Time Limit

50 Intimation
(1) The listed entity shall give prior intimation about Atleast two
of Board the Board meeting in which any of the following working days
meetings proposals is to be considered: in
(a) - an alteration in the form or nature of non- advance
convertible securities that are listed on the stock excluding the
exchange or in the rights or privileges of the date of the
holders thereof; intimation
(b) - an alteration in the date of the interest/ and the date
dividend/ redemption payment of non-convertible of the
securities;

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(c) - financial results viz. quarterly or annual; meeting of

(d) - fund raising by way of issuance of non- the board
convertible securities; or 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) mentioned above;
(b) - any meeting of the holders of non-convertible
securities in relation to the proposal at clause (e)
mentioned above.

54 (1) Security Listed companies have been permitted to

Cover maintain asset cover in respect of its listed non-
convertible debt securities, at 100% asset cover
or asset cover as per the terms of the offer
document/ Information Memorandum and/ or
Debenture Trust Deed, sufficient to discharge the
principal amount and interest thereon at all
times for the non-convertible debt securities
issued.

54(2) Disclosure The listed entity shall disclose to the stock Quarterly,
of exchange the extent and nature of security half yearly,
Security created and maintained with respect to its yearto-date
Cover secured listed non-convertible debt securities. and annual
financial

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statements
as applicable
55 Ratings Each rating obtained by the listed entity with Yearly
respect to non-convertible debt securities shall be
reviewed at least once a year by a credit rating
agency registered by the Board.
56 Annual The listed company shall forward the following to
Report the debenture trustee promptly:
- Copy of annual report
- Copy of all notices, resolutions and
circulars
- Intimations regarding revision in rating,
default in payment of interest
- a half-yearly certificate regarding
maintenance of hundred percent Asset
cover in respect of listed non-convertible
debt securities
57 Intimations/ The listed entity shall submit a certificate to the within one
other stock exchange regarding status of payment in working day
submissions case of non-convertible securities. of the
to stock interest or
exchange(s) dividend or
principal
becoming due

Financial Results [Regulation 52]

(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 recognised stock
exchange(s).

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However, 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.
(2) The listed entity shall comply with following requirements with respect to preparation, approval,
authentication and publication of annual and quarterly financial results:
(a) Un-audited financial results on quarterly basis shall be accompanied by limited review report
prepared by the statutory auditors of the listed entity, in the format as specified by the Board.
Provided that in case of issuers whose accounts are audited by the Comptroller and A uditor
General of India, the report shall be provided by any practising Chartered Accountant.
(b) The quarterly results shall be taken on record by the board of directors and signed by the
managing director / executive director.
(c) The audited results for the year shall be submitted to the recognised stock exchange(s) in the
same format as is applicable for quarterly financial results.
(d) The annual audited standalone and consolidated financial results for the financial year shall be
submitted to the stock exchange(s) within sixty days from the end of the financial year along
with the audit report. Provided that issuers, who are being audited by the Comptroller and
Auditor General of India, shall adopt the following two step process for disclosure of the annual
audited financial results:
(i) The first level audit shall be carried out by the auditor appointed by the Comptroller and
Auditor General of India, who shall audit the financials of the listed entity and such financial
results shall be submitted to the Stock Exchange(s) within sixty days from the end of the
financial year.
(ii) After the completion of audit by the Comptroller and Auditor General of India, the financial
results shall be submitted to the Stock exchange(s) within nine months from the end of the
financial year.
(e) Modified opinion(s) in audit reports/limited review reports that have a bearing on the interest
payment/ dividend payment pertaining to non-convertible securities/ redemption or principal
repayment capacity of the listed entity shall be appropriately and adequately addressed by the
board of directors while publishing the accounts for the said period.

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(f) The listed entity shall also submit as part of its standalone or consolidated financial results
for the half year, by way of a note, a statement of assets and liabilities and statement of
cash flows as at the end of the half year.

VARIOUS POLICIES TO BE MAINTAINED BY THE LISTED COMPANIES

Regulation Title of Policy Requirements

9 Preservation of To be classified into two categories:-
documents Policy 1. documents whose preservation shall be permanent in
nature
2. documents with preservation period of not less than
eight years after completion of the relevant transactions
16(1)(c ) Policy on The listed entity shall formulate a policy for determining
determining ‘material’ subsidiary.
"material
subsidiary"
17(9)(b) Risk Management The board of directors shall be responsible for framing,
Policy implementing and monitoring the risk management plan
for the listed entity
17(5) Code of Conduct - The board of directors shall lay down a code of
conduct for all members of board of directors and
senior management of the listed entity.
- The code of conduct shall suitably incorporate the
duties of independent directors as laid down in the
Companies Act, 2013
22 Vigil Mechanism The listed entity shall formulate a vigil mechanism for
directors and employees to report genuine concerns
23(1) Materiality of The listed entity shall formulate a policy on materiality of
related related party transactions and on dealing with related party
party transactions transactions, including clear threshold limits duly approved
and on by the board of directors and such policy shall be reviewed

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dealing with by the board of directors at least once every three years
related party and updated accordingly.
transactions
23(3) Criteria for the audit committee shall lay down the criteria for granting
granting the omnibus approval in line with the policy on related
omnibus approval party transactions of the listed entity and such approval
for Related Party shall be applicable in respect of transactions which are
Transactions repetitive in nature;
30 Policy on The listed entity shall make disclosure of events specified
determination in Para B of Part A of Schedule III, based on application
of materiality of the guidelines for materiality, as specified in sub-
regulation (4)
43A Dividend The top five hundred listed entities based on market
Distribution capitalization (calculated as on March 31 of every financial
Policy year) shall formulate a dividend distribution policy which
shall be disclosed in their annual reports and on their
websites.

Part D of Board Diversity The Board shall devise a policy on diversity of board of
Schedule Policy directors
II

Part D of Criteria for The Nomination and Remuneration Committee shall

Schedule evaluation formulate criteria for evaluation of performance of
II of performance of independent directors and the board of directors
independent
directors
and the board of
directors

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NON-COMPLIANCE WITH PROVISIONS RELATED TO CONTINUOUS DISCLOSURES

In order to ensure effective enforcement of continuous disclosure obligations by issuers of listed
Non-Convertible Debt Securities or NCRPS or Commercial Papers, it has been decided to lay
down a uniform structure for imposing fines for non-compliance with continuous disclosure
requirements.

In view of the above and in the interests of investors and the securities market, it has been
provided that-
- The Stock Exchanges shall levy fine and take action in case of non-compliances with continuous
disclosure requirements by issuers of listed Non-Convertible Debt Securities and/ or NCRPS
and/ or Commercial Papers as specified in Annexure I and Annexure II.
- Stock Exchanges may deviate from the above, if found necessary, only after recording reasons
in writing.
- In case a non-compliant entity is listed on more than one recognized stock exchange, the
concerned recognized stock exchanges shall take uniform action under this circular in
consultation with each other.
- The recognized stock exchanges shall take necessary steps to implement this circular and shall
disclose on their website the action(s) taken against the entities for non-compliance(s);
including the details of the respective requirement, amount of fine levied/ action taken etc.
- The amount of fine realized as per the structure provided in Annexure I of this circular shall
be credited to the "Investor Protection Fund" of the concerned recognized stock exchange.
- The fines specified in Annexure I of this circular shall continue to accrue till the time of
rectification of the non-compliance and to the satisfaction of the concerned recognized stock
exchange. Such accrual shall be irrespective of any other disciplinary/enforcement action(s)
initiated by recognized stock exchange(s)/SEBI.
- The recognized stock exchanges may keep in abeyance the action or withdraw the action in
specific cases where specific exemption from compliance with the requirements for continuous
disclosures /moratorium on enforcement proceedings has been provided for under any Act,
Court/Tribunal Orders etc.
- The above provisions are without prejudice to the power of SEBI to take action under the
securities laws.

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ROLE OF COMPANY SECRETARY IN EMPLOYMENT

A listed entity shall appoint a Qualified Company Secretary as the Compliance Officer. The
compliance officer of the listed entity shall be responsible for –
- ensuring conformity with the regulatory provisions applicable to the listed entity in letter and
spirit.
- co-ordination with and reporting to SEBI, recognised stock exchange(s) and depositories with
respect to compliance with rules, regulations and other directives of these authorities in manner
as specified from time to time.
- ensuring that the correct procedures have been followed that would result in the correctness,
- authenticity and comprehensiveness of the information, statements and reports filed by the
listed entity under these regulations.
- monitoring email address of grievance redressal division as designated by the listed entity for
the purpose of registering complaints by investors.

The listed entity shall submit a compliance certificate to the exchange, duly signed by both
the compliance officer of the listed entity and the authorised representative of the share
transfer agent, wherever applicable, within one month of end of each half of the financial year,
certifying that all activities in relation to both physical and electronic share transfer facility
are maintained either in house or by Registrar to an issue and share transfer agent registered
with SEBI.

“Senior Management” shall mean Officers/Personnel of the listed entity who are members of
its core management team excluding Board of directors and normally this shall comprise all
members of management one level below Chief Executive Officer/ Managing Director/ Whole
Time Director/Manager (including Chief Executive Officer/Manager, in case they are not part
of the board) and shall specifically include Company Secretary and Chief Financial Officer.

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ROLE OF A COMPANY SECRETARY IN PRACTICE

Certificate regarding Transfer of Securities

Certification to the effect that all transfers have been completed within the stipulated time.
[Regulation 40(9)]

Certificate Regarding Compliance of Conditions of Corporate Governance under SEBI Listing

Regulations
SEBI listing regulations authorizes Company Secretary in Practice to issue certificate regarding
compliance of conditions of Corporate Governance. [Schedule V, clause E]

Certificate Regarding Maintenance of 100% Asset Cover

To issue half yearly certificate regarding maintenance of 100% security cover in respect of
listed non- convertible debt securities. [Regulation 56(1)] (d)]

Secretarial Audit Report

Every listed entity and its material unlisted subsidiaries incorporated in India shall undertake
Secretarial Audit and shall annex with its Annual Report, a Secretarial Audit Report, given by
a Company Secretary in Practice, in such form as may be specified with effect from the year
ended March 31, 2019.[ Regulation 24A]

Certification regarding Director’s Disqualification

A certificate from a Company Secretary in Practice that none of the directors on the board of
the company have been debarred or disqualified from being appointed or continuing as Directors
of Companies by the Board/ Ministry of Corporate Affairs or any such Statutory Authority.
[Schedule V, Part C, Clause 10 (i)]

COMMITTEE POSITIONS OF DIRECTORS IN A LISTED COMPANY

A director shall not be a member in more than ten committees or act as chairperson of more
than five committees across all listed entities in which he / she is a director which shall be
determined as follows:

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(a) the limit of the committees on which a director may serve in all public limited companies,
whether listed or not, shall be included and all other companies including private limited
companies, foreign companies, high value debt listed entities and companies under Section 8
of the Companies Act, 2013 shall be excluded;
(b) for the purpose of determination of limit, chairpersonship and membership of the a udit
committee and the Stakeholders’ Relationship Committee alone shall be considered.

Question:
Mr. A is a Director of ABC Listed company. He holds following membership / chairmanship in
following companies –
1. Chairman of Audit Committee of ABC Listed company
2. Chairman of Nomination & Remuneration Committee of ABC Listed company
3. Chairman of Stakeholders’ Relationship Committee of ABC Listed company
4. Chairman of Audit Committee of XYZ Limited company
5. Chairman of Nomination & Remuneration Committee of XYZ Limited company
6. Chairman of Stakeholders’ Relationship Committee of XYZ Limited company
Please advise the limit of membership / chairpersonship.
Answer:
Mr. A, in the given case, is chairman of above mentioned committees. Only Audit Committee
and Stakeholders Relationship Committee will be counted for the purpose and both ABC Listed
company and XYZ Limited, being public limited company will be considered. Hence, his total
chairperson is 4 which is within the limit of 5 committee chairpersonship as permitted.

POWER TO RELAX STRICT ENFORCEMENT OF SEBI (LODR) REGULATIONS, 2015

(REGULATION 102)

SEBI may after due consideration of the interest of the investors and the securities market
and for the development of the securities market, relax the strict enforcement of any of the
requirements of these regulations, if an application is made by the Central Government in
relation to its strategic disinvestment in a listed entity.

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YouTube - YES Academy for CS and Law In Karma, I Believe.. Chapter 12 - Takeovers

CHAPTER 12 – ACQUISITION OF SHARES & TAKEOVERS

MEANING AND CONCEPT OF TAKEOVER

The term takeover is not defined in the Companies Act, 2013. Broadly speaking, takeover
refers to acquisition of company by another company.

Takeover is an acquisition of shares carrying voting rights in a company in order to gain control
over the management of the company. It takes place when an individual or a group of individuals
or a company acquires control over the assets of a' company either by acquiring majority of its
shares or by obtaining control of the management of the business and affairs of the company.

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KINDS OF TAKEOVER

Friendly takeover
Friendly takeover means a takeover done with the consent of board of directors of both the
parties ie the Acquirer and the Target Company. In friendly takeover, there is an agreement
between the management of two companies through negotiations and the takeover bid may be
with the consent of majority or all the shareholders of the target company. This kind of
takeover is done through negotiations between two groups. Therefore, it is also called negotiated
takeover.

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Hostile takeover
The word hostile means without the will and intention of the management of the Target
Company. When an acquirer company does not offer the target company the proposal to acquire
its undertaking but silently takes efforts to gain control against the wishes of existing
management, such acts of acquirer are known as 'hostile takeover’. Such takeovers a re hostile
on management and are thus called hostile takeover. Hostile takeovers directly made to the
shareholders of Target Company has resulted in a multiple defensive strategies-by corporate
from being taken over by the company

Bailout takeover
Takeover of a financially sick company by a profit earning company to bail out the weak
company is known as bail out takeover. A bail out takeover takes place with the approval of
the Financial Institutions and banks since the objective is to revive the financially weak
company and banks normally have a charge on the assets of the company.

LEGAL ASPECTS OF TAKEOVER

The legislations/regulations that mainly govern takeover is as under:

1. SEBI (SAST) Regulations 2011
2. Companies Act, 2013
3. Listing Agreement

IMPORTANT DEFINITIONS [REGULATION 2]

ACQUIRER [REG. 2(1) (A)]

"Acquirer" means any person who, directly or indirectly, acquires or agrees to acquire whether
by himself, or through, or with persons acting in concert with him, shares or voting rights in,
or control over a target company.

Thus, acquirer may be "any person "-even a foreign company-i.e. company incorporated outside
India. If a foreign company acquires shares of its listed Indian subsidiary company, the acquirer

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(foreign company) is bound to -make open offer by way of Public announcement before
acquiring shares or voting rights in the listed Indian subsidiary company.

Further, the term 'any person' will encompass natural persons as well as artificial persons.

The mere fact that a person is a promoter does not make him an acquirer, unless it is shown
that he either intends to acquire or is acting in concert with the acquirer for the acquisition
of shares of the target company. The definition of acquirer does not include a promoter, but
includes persons acting in concert with an acquirer. The question as to whether a person is
acting in concert with the acquirer is essentially a question of fact. A promoter may not act
in concert with the acquirer, whereas a stranger might

ACQUISITION [REG. 2(1)(B)]

"Acquisition" means, directly or indirectly, acquiring or agreeing to acquire shares or voting
rights in, or control over, a target company.

CONTROL [REG. 2(1) (E)]

"Control" includes the right to appoint majority of the directors or to control the management
or policy decisions exercisable -by a person or persons acting individually or in concert, directly
or indirectly, including by virtue of their shareholding or management rights or sha reholders
agreements or voting agreements or in any other manner:

Provided that a director or officer of a target company shall not be considered to be in control
over such target company, merely by virtue of holding such position.

FREQUENTLY TRADED SHARES [REG. 2(1)(J)]

"Frequently Traded Shares" means shares of a target company, in which the traded turnover
on any stock exchange during the twelve calendar months preceding the * calendar month in
which the public announcement is made, is at least ten per cent of the total number of shares
of such class of the target company:

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Provided that where the share capital of a particular class of shares of the target company is
not identical throughout such period, the weighted average number of total shares of such
class of the target company shall represent the total number of shares.

FUGITIVE ECONOMIC OFFENDER

Fugitive economic offender” shall mean an individual who is declared a fugitive economic
offender under section 12 of the Fugitive Economic Offenders Act, 2018 (17 of 2018)] [Reg.
2(1)(ja)]

IDENTIFIED DATE [REG. 2(1)(K)]

"Identified Date" means the date falling on the4enth working day prior to the commencement
of the tendering period, for the purposes of determining the shareholders to whom the letter
of offer shall be sent.

IMMEDIATE RELATIVE [REG. 2(1)(L)]

"Immediate Relative” means any spouse of a person, and includes parent, brother, sister or
child of such person or of the spouse.
It may be noted that grant-parents, father-in-law/mother-in-law/brother-in-law, uncles,
nephews, grandparents, great grandparents, etc. are not "immediate relatives”.

PERSON ACTING IN CONCERT [REG. 2(1)(G)]

"Person acting in concert" means.—
Persons who, with a common objective or purpose of acquisition of shares or voting rights in,
or exercising control over a target company, pursuant to an agreement or understanding, formal
or informal, directly or indirectly co-operate for acquisition of shares or voting rights" in, or
exercise of control over the target company.

Without prejudice to the generality of the foregoing, the persons falling within the following
categories shall be deemed to be persons acting in concert with other persons within the same
category, unless the contrary is established,-

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 A company, its holding company, subsidiary company and any company under the same
management or control;
 A company, its directors, and any person entrusted with the management of the company;
 Directors of companies referred to in items (i) and (ii) of this sub-clause and associates of
such directors;
 Promoters and members of the promoter group;
 A mutual fund, its sponsor, trustees, trustee company, and asset management company;
 A collective investment scheme and its collective investment management company, trustees
and trustee company;
 A venture capital fund and its sponsor, trustees, .trustee company and asset management
company;
 A foreign institutional investor and its subaccounts;
 A merchant banker and its client, who is an acquirer;
 A portfolio manager and its client, who is an acquirer;
 Banks, financial advisors and stock brokers of the acquirer, or of any company which is a
holding company or subsidiary of the acquirer, and where the acquirer is an individual, of the
immediate relative of such individual

JUDICIAL PRONOUNCEMENT
- Supreme Court in the case of M/S Daiichi Sankyo Company v. Jayaram Chigurupati & Ors held
that what does the deeming provision do?
- The deeming provision simply says that in case of specified kinds of relationships, in each
category, the person paired with the other would be deemed to be acting in concert with
him/it.
- What it means is that if one partner in the pair makes or agrees to make substantial acquisition
of shares etc. in a company it would be presumed that he/it was acting in pursuance of a
common objective or purpose shared with the other partner of the pair.
- For example, if a company or its holding company makes or agrees to make a move for
substantial acquisition of shares etc. of a certain target company then it would be presumed
that the move is in pursuance of a common objective and purpose jointly shared by the holding
company and the subsidiary company. But the mere fact that two companies are in the

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relationship of a holding company and a subsidiary company, without anything else, is not
sufficient to comprise "persons acting in concert". Something more is required to comprise
"persons acting in concert" than the mere relationship of a holding company and a subsidiary
company.
- There may be hundreds of instances of a company having a subsidiary company but to dub
them as "persons acting in concert" would be quite ridiculous unless another company is
identified as the target company and either the holding company or the subsidiary make some
positive move or show some definite inclination for substantial acquisition of shares etc. of the
target company.

TARGET COMPANY [REG. 2(1)(Z)]

"Target Company" means a LISTED INDIAN COMPANY/ LISTED INDIAN BODY CORPORATE
OR corporation established under a Central legislation, State legislation or Provincial legislation.

TENDERING PERIOD [REG. 2(1)(ZA)]

"Tendering Period" means the period within which shareholders may ten der their shares in
acceptance of an open offer to acquire shares made under these regulations.

VOLUME WEIGHTED AVERAGE MARKET PRICE [REG 2(1)(ZB)]

"Volume Weighted Average Market Price" means the product of the number of equity shares
traded on a stock exchange and the price of each equity share divided by the total number of
equity shares traded on the stock exchange.

VOLUME WEIGHTED AVERAGE PRICE [REG. 2(1)(ZC)]

"Volume Weighted Average Price” means the product of the number of equity shares bought
and price of each such equity share divided by the total number of equity shares bought.

WEIGHTED AVERAGE NUMBER OF TOTAL SHARES [REG. 2(1)(ZD)]

"Weighted Average Number of Total Shares" means the number of shares at the -beginning of
a period, adjusted for shares cancelled, bought back or issued during the aforesaid period*
multiplied by a time-weighing factor.

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WILFUL DEFAULLTER
“wilful defaulter” means any person who is categorized as a wilful defaulter by any bank or
financial institution or consortium thereof, in accordance with the guidelines on wilful defaulters
issued by the Reserve Bank of India and includes any person whose director, promoter or partner
is categorized as such [Reg. 2(1)(ze)]

SUBSTANTIAL ACQUISITION OF SHARES, VOTING RIGHTS OR CONTROL OR INITIAL TRIGGER

THRESHOLD [REGULATIONS 3-9]

1) Without giving a public announcement for open offer, no acquirer shall acquire shares or voting
rights in a target company along with shares or voting rights, if any, held by him in person or
with persons acting in concert, entitle them to exercise twenty-five per cent or more of the
voting rights of such target company.

2) Without giving a public announcement for open offer, any acquirer along with his PAC’s, who
already holds twenty-five per cent or more of the voting rights in the target company but less
than the maximum permissible non-public shareholding (75% or 90%), shall not acquire any
shares or voting rights more than five percent within any financial year in such target
company.

CREEPING ACQUISITION TRIGGER [REG. 3(2)]

CREEPING ACQUISITION MEANS SLOW AND STEADY ACQUISTION OF SHARES BY THE

ACQUIRER IN TARGET COMPANY. IN CREEPING ACQUISITION ACQUIRER CAN ACQUIRE
MAX 5% VOTING RIGHTS OF TARGET CO IN EACH FINANCIAL YEAR.

The creeping acquisition route is meant to facilitate consolidation by persons already in control
or holding substantial number of shares.

An acquirer who (together with PACs) holds 25% or more voting rights in a target company,
but less than the maximum permissible non-public shareholding [i.e., Maximum Permissible

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Non-Public (Promoters') Shareholding is 75% and Minimum Permissible Public shareholding is

25%], is allowed to acquire additional voting rights in the target company to the extent of
upto 5% within a financial year ending on 31st March, without making an open offer [Regulation
3(2)]. If he acquires more than 5% additional voting rights in a financial year ending on 3Ist
March, he will have to make an open offer. This is subject to their (acquirer and PACs)
aggregate post acquisition shareholding not exceeding the maximum permissible non -public
shareholding.

Thus, creeping acquisition can be made at the maximum rate of 5% in any one financial year
without complying with the requirement of mandatory public offer by way of public
announcement, provided that the post-acquisition shareholding of acquirer together with persons
acting in concert with him shall not increase beyond 75%.

The open offer obligation would also apply to acquisition of shares by any person from other
persons acting in concert with him such that the individual shareholding of the person acquiring
shares equals or exceeds the stipulated threshold of 5% although the aggregate shareholding
along with persons acting in concert may remain unchanged. [Reg. 3(3)]

It may be noted that Regulations 3(1) and 3(2) are mutually exclusive so that an acquisition
can trigger either regulation 3(1) or (but not and) regulation 3(2). It is the percentage of
the acquirer's shareholding before and after an acquisition that determines whether the
acquisition triggers regulation 3(1) or regulation 3(2).

ONE TIME EXEMPTION FOR CREEPING ACQUISITION

The acquisition beyond 5% but up to 10% of the voting rights in the target company shall be
permitted for the financial year 2020-21 only in respect of acquisition by a promoter pursuant
to preferential issue of equity shares by the target company. This exemption was only permitted
through preferential issue to promoters and not otherwise.

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Question:
What is the basis of computation of the creeping acquisitions limit under Regulation 3(2) of
Takeover Regulations 2011?

Answer:
For computing acquisitions limits for creeping acquisition specified under regulation 3(2), gross
acquisitions/ purchases shall be taken in to account thereby ignoring any intermittent fall in
shareholding or voting rights whether owing to disposal of shares or dilution of voting rights
on account of fresh issue of shares by the target company. SEBI in the interpretative letter
dated 18th September, 2015 issued under the SEBI (Informal Guidance) Scheme, 2003 as
requested by M/s Adani Properties Private Limited has held that an exempt acquisition would
not be counted towards computing acquisitions on a gross basis.

Example:
Mr. A is contemplating acquisition of XYZ Limited, a listed entity. He presently holds 23%
and his brother, who is having common objective holds 3%. Together their holding is 26%. Mr.
A, in view of creeping acquisition limits, desires to further acquire 3% assuming the 5% ceiling
in every financial year.

Answer:
In view of Regulation 3(3) as discussed above, though together they hold 26% and can avail
5% ceiling, but in case Mr. A on individual basis crossing the threshold of 25% or more (since
presently he holds 23% and further contemplates to acquire 3% more), he will be required to
make open offer. However, in given case, if his brother only acquires 3% and increase their
total holding to 29% then there will be no requirement of Open Offer.

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ACQUISITION OF CONTROL [REGULATION 4]

Regulation 4 provides the following:

Irrespective of acquisition or holding of shares or voting rights in a target company, no acquirer
shall acquire, directly or indirectly, control over such target company unless the acquirer makes
a public announcement of an open offer for acquiring shares of such target, company, in
accordance with these-regulations.

Explanation
If any acquirer wants to acquire control over a target company, he has to make public
announcement to acquire shares from the shareholders of the target company.
As per Reg. 2(1) (e), Control includes acquisition, directly or indirectly, of any of the following
rights by the acquirer:
1) Right to appoint majority of the directors;
2) Right to control the management;
3) Right to control the policy decisions.

VOLUNTARY OFFER [REGULATION 6]

Shareholders holding shares entitling them to exercise 25% or more of the voting rights in the
target company may, without breaching minimum public shareholding requirements under the
listing agreement, voluntarily make an open offer to consolidate their shareholding subject to
their aggregate shareholding after completion of the open offer not exceeding the maximum
permissible non-public shareholding. [Regulation 6(1)]

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The facility to voluntarily make an open offer shall not be available if in the proximate past
(preceding 52 weeks), such persons (acquire to and PACs holding 25% or more voting rights)
have made acquisitions without open offer within the creeping acquisition limit of 5%. [The
first proviso to Regulation 6(1)]

Such an acquirer is prohibited from making acquisitions outside the open offer during the offer
period and also prohibited from any further acquisitions for six months after the open offer
except pursuant to another voluntary open offer. [Regulation 6(2)]

Wilful Defaulter
Notwithstanding anything contained in these regulations, no person who is a wilful defaulter
shall make a public announcement of an open offer for acquiring shares or enter into any
transaction that would attract the obligation to make a public announcement of an open offer
for acquiring shares under these regulations. However, this regulation shall not prohibit the
wilful defaulter from making a competing offer in accordance with regulation 20 of these
regulations upon any other person making an open offer for acquiring shares of the target
company.

Fugitive Economic Offender

Notwithstanding anything contained in these regulations, no person who is a fugitive economic
offender shall make a public announcement of an open offer or make a competing offer for
acquiring shares or enter into any transaction, either directly or indirectly, for acquiring any
shares or voting rights or control of a target company.

OFFER SIZE [REGULATION 7]

Regulation 7 provides the following:

Any mandatory open offer would be for at least 26%, of total shares of the target company,
as of tenth working day from the closure of the tendering period [Regulation 7(1)].

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A voluntary open offer can be made for the acquisition of shares representing at least 10%
but shall not exceed 'such number of shares which will take the holding of the acquirer and
PACs to beyond maximum non-public shareholding permitted under the listing agreement. [Reg.
7(2)] Upon a competing offer being made, such an acquirer would be permitted to increase
his offer size to a normal full-sized open offer within fifteen working days. [Proviso to Reg.
7(2)].

DISCLOSURE OF ACQUISITION AND DISPOSAL [REGULATION 29]

Regulation 29(1) provides that any acquirer along with any PAC, who acquires shares or voting
rights in a target company entitle them to 5% cent or more of the voting rights in such target
company shall disclose their aggregate shareholding and voting rights in such target company
in a specified form.

Regulation 29(2) provides that any acquirer, who together with PACs holds 5% or more of
the voting rights in a target -company, shall disclose every acquisition or disposal of shares of
such target company representing 2% or more change of the voting rights in such target
company along with their aggregate shareholding and voting rights.

Shares taken by way of encumbrance shall be treated as an acquisition; shares given upon
release of encumbrance pledge shall be treated as a disposal. However, this requirement shall
not apply to a scheduled commercial bank or public financial institution in connection with a
pledge of shares for securing indebtedness in-the ordinary course of business. The word
encumbrance means taking loan against such shares.

Regulation 29(3) provides that the above disclosures shall be made within two working days
of the receipt of intimation of allotment of shares, or the acquisition of shares or voting rights
in the target company to,-
a. every stock exchange where the shares of the target company are listed; and
b. The target company at its registered office.

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Note:
- Shares taken by way of encumbrance shall be treated as an “acquisition”.
- Share given upon release of encumbrance shall be treated as a “disposal”
- The requirement as listed above shall not apply to a Scheduled Commercial bank or public
financial institution or a housing finance company or a systematically important non -banking
financial company as pledgee in connection with a pledge of shares for securing indebtness in
the ordinary course of business.

CONTINUAL DISCLOSURES [REGULATION 30]

Regulation 30(1) provides that every person, who together with PACs holds 25% shares or
voting rights them to exercise of the voting rights in a target company (substantial
shareholder), shall disclose their aggregate shareholding as of 31st of March, in such target
company in such form as may be specified. Disclosure shall be made within 7 working days
from the end of each financial year to-
a. every stock exchange where the shares of the target company are listed; and
b. The target company at its registered office.

Regulation 30(2) provides that the promoter of every target company shall together with
persons acting in concert with him, disclose their aggregate shareholding and voting rights as
of the 31s day of March, in such target company in such form as may be specified Disclosure
shall be made within 7 working days from the end of each financial year to,-
a. every stock exchange where the shares of the target company are listed; and
b. The target company at its registered office.

DISCLOSURE OF ENCUMBERED SHARES [REGULATION 31]

The word encumbrance means loan against a particular asset. Here it means loan obtained or
repaid against shares. The promoter of every target company shall disclose the following:
 details of shares in such -target company encumbered by him or by persons acting in concert
with him;

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 details of any invocation of such encumbrance; and

 Details of release of such encumbrance.
The disclosures required as above shall be made within seven working days from the creation
or invocation or release of encumbrance, as the case may be to,-
a. every stock exchange where the shares of the target company are listed; and
b. The target company at its registered office.

The promoter of every target company shall declare on a yearly basis that he, along with
persons acting in concert, has not made any encumbrance, directly or indirectly, other than
those already disclosed during the financial year.

The declaration required under sub-regulation (4) shall be made within seven working days
from the end of each financial year to –
(a) every stock exchange where the shares of the target company are listed; and
(b) the audit committee of the target company.

INDIRECT ACQUISITION OF SHARES OR CONTROL

Indirect acquisition means the acquisition of shares, voting rights or control over any other
company which would enable the acquirer of shares, voting rights or control to exercise such
percentage of voting rights, which would otherwise have triggered an open offer process.

Certain indirect acquisitions are regarded as ‘deemed direct acquisitions’ if such indirect
acquisition satisfy the following conditions such as:
(a) the proportionate net asset value of the target company as a percentage of the consolidated
net asset value of the entity or business being acquired exceeds 80 percent; or
(b) the proportionate sales turnover of target company as a percentage of the consolidated sales
turnover of the entity or business being acquired exceeds 80 percent; or
(c) the proportionate market capitalisation of the target company as a percentage of the enterprise
value for the entity or business being acquired exceeds 80 percent;

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In case of indirect acquisitions where public announcement has been made, an amount
equivalent to hundred per cent of the consideration payable in the open offer shall be deposited
in the escrow account.

Further, under regulation 18(11) in case, the acquirer is unable to make payment to the
shareholders who have accepted the open offer within such period, the acquirer shall pay
interest for the period of delay to all such shareholders whose shares have been accepted in
the open offer, at the rate of 10% per annum.

OPEN OFFER PROCESS [REGULATIONS 12-23]

1. Appointment of merchant banker prior to the Public Announcement (PA).

2. The Public Announcement of an open offer shall be sent to all the stock exchanges
on which the shares of the target company are listed.
3. Opening of Escrow Account – 2 working days prior to the date of the detailed public statement
towards security for performance of his obligations under these regulations.
4. Detailed public statement – within 5 working days from the date of public announcement.
5. Filing of Draft Letter of Offer with SEBI and send copy to Target company and Stock Exchanges
- within 5 working days from detailed public statement.
6. Dispatch Letter of Offer – within 7 working days of receiving comments from SEBI.
7. Upward revision of Offer price, if any by Acquirer – prior to the commencement of the last 1
working day before the commenement of the tendering period.
8. Recommendation of Committee of Independent Directors to be published – atleast 2 working
days before the commencement of the tendering period.
9. Tendering period: commencment – shall start not later than 12 working days from the date of
reciept of comments from the Board and to remain open for 10 working days.
10. Tendering period to be closed after 10 working days.
11. Payment of Consideration- within 10 working days from the last day of tendering period.
12. Post offer Advertisement – within 5 working days from closure of offer period.

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AUTOMATIC EXEMPTIONS

(1) (a) acquisition pursuant to inter se transfer of shares amongst qualifying persons, being–
(i) immediate relatives;
(ii)persons named as promoters in the shareholding pattern filed by the target company in terms
of the listing regulations, the listing agreement or these regulations for not less than three
years prior to the proposed acquisition;
(iii)a company, its subsidiaries, its holding company, other subsidiaries of such – holding company,
persons holding not less than fifty per cent of the equity shares of such company, other
companies in which such persons hold not less than fifty per cent of the equity shares, and
their subsidiaries subject to control over such qualifying persons being exclusively held by the
same persons;
(iv) persons acting in concert for not less than three years prior to the proposed acquisition, and
disclosed as such pursuant to filings under the listing regulations or the listing agreement;
(v) shareholders of a target company who have been persons acting in concert for a period of not
less than three years prior to the proposed acquisition and are disclosed as such pursua nt to
filings under the listing regulations or as the case may be, the listing agreement, and any
company in which the entire equity share capital is owned by such shareholders in the same
proportion as their holdings in the target company without any differential entitlement to
exercise voting rights in such company:

However, for purposes of availing of the exemption under this clause, –

(i) If the shares of the target company are frequently traded, the acquisition price per share shall
not be higher by more than twenty-five per cent of the volume-weighted average market price
for a period of sixty trading days preceding the date of issuance of notice for the proposed inter
se transfer, as traded on the stock exchange where the maximum volume of trading in the
shares of the target company are recorded during such period, and if the shares of the target
company are infrequently traded, the acquisition price shall not be higher by more than twenty -
five percent of the price determined; and
(ii) The transferor and the transferee shall have complied with applicable disclosure requirements
set out in these regulations.

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(b) acquisition in the ordinary course of business by, –

(i) an underwriter registered with the SEBI by way of allotment pursuant to an underwriting
agreement in terms of the SEBI (ICDR) Regulations, 2018;
(ii) a stock broker registered with SEBI on behalf of his client in exercise of lien over the shares
purchased on behalf of the client under the bye-laws of the stock exchange where such stock
broker is a member;
(iii)a merchant banker registered with SEBI or a nominated investor in the process of market
making or subscription to the unsubscribed portion of issue in terms of the SEBI (ICDR)
Regulations, 2018;
(iv) any person acquiring shares pursuant to a scheme of safety net in terms of the then existing
SEBI (ICDR) Regulations, 2018;
(v) a merchant banker registered with SEBI acting as a stabilising agent or by the promoter or
re-issue shareholder in terms of the SEBI (ICDR) Regulations, 2018;
(vi) by a registered market-maker of a stock exchange in respect of shares for which he is the
market maker during the course of market making;
(vii) a Scheduled Commercial Bank, acting as an escrow agent; and
(viii)invocation of pledge by Scheduled Commercial Banks or Public Financial Institutions as a
pledgee.

(c) acquisitions at subsequent stages, by an acquirer who has made a public announcement of an
open offer for acquiring shares pursuant to an agreement of disinvestment, as contemplated in
such agreement. However, both the acquirer and the seller are the same at all the stages of
acquisition; and full disclosures of all the subsequent stages of acquisition, if any, have been
made in the public announcement of the open offer and in the letter of offer.

(d) acquisition pursuant to a scheme, –

(i) made under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 or any
statutory modification or re-enactment thereto;
(ii) of arrangement involving the target company as a transferor company or as a transferee
company, or reconstruction of the target company, including amalgamation, merger or demerger,

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pursuant to an order of a court or a tribunal or a competent authority under any law or

regulation, Indian or foreign; or
(iii)of arrangement not directly involving the target company as a transferor company or as a
transferee company, or reconstruction not involving the target company’s undertaking, including
amalgamation, merger or demerger, pursuant to an order of a court or a tribunal under any law
or regulation, Indian or foreign, subject to, –
A. the component of cash and cash equivalents in the consideration paid being less than twenty-
five per cent of the consideration paid under the scheme; and
B. where after implementation of the scheme of arrangement, persons directly or indirectly holding
at least thirty-three per cent of the voting rights in the combined entity are the same as the
persons who held the entire voting rights before the implementation of the scheme.

(da) acquisition pursuant to a resolution plan approved under section 31 of the Insolvency and
Bankruptcy Code, 2016.

(e) acquisition pursuant to the provisions of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002;

(f) acquisition pursuant to the provisions of SEBI (Delisting of Equity Shares) Regulations, 2021;

(g) acquisition by way of transmission, succession or inheritance;

(h) acquisition of voting rights or preference shares carrying voting rights arising out of the
operation of sub-section (2) of section 47 of the Companies Act, 2013;

(i) acquisition of shares by the lenders pursuant to conversion of their debt as part of a debt
restructuring implemented in accordance with the guidelines specified by RBI; However, the
conditions specified under sub-regulation (6) of regulation 158 of the SEBI (ICDR) Regulations,
2018 are complied with;

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(j) increase in voting rights arising out of the operation of sub-section (1) of section 106 of the
Companies Act, 2013 or pursuant to a forfeiture of shares by the target company, undertaken
in compliance with the provisions of the Companies Act, 2013 and its articles of association.

(1) An increase in the voting rights of any shareholder beyond the threshold limits stipulated in
sub-regulations (1) and (2) of regulation 3, without the acquisition of control, pursuant to the
conversion of equity shares with superior voting rights into ordinary equity shares, shall be
exempted from the obligation to make an open offer under regulation 3.

(2) Any acquisition of shares or voting rights or control of the target company by way of preferential
issue in compliance with regulation 164A of the Securities and Exchange Board of India (Issue
of Capital and Disclosure Requirements) Regulations, 2018 shall be exempt from the obligation
to make an open offer under subregulation (1) of regulation 3 and regulation 4.

(3) An increase in voting rights in a target company of any shareholder beyond the limit attracting
an obligation to make an open offer under sub-regulation (1) of regulation 3, pursuant to buy-
back of shares by the target company shall be exempt from the obligation to make an open
offer provided such shareholder reduces his shareholding such that his voting rights fall to
below the threshold referred to in regulation 3(1) within ninety days from the date of the
closure of the said buy back offer.

(4) The following acquisitions shall be exempt from the obligation to make an open offer-
(a) acquisition of shares by any shareholder of a target company, upto his entitlement, pursuant
to a rights issue;
(b) acquisition of shares by any shareholder of a target company, beyond his entitlement, pursuant
to a rights issue, subject to fulfilment of the following conditions, –
(i) the acquirer has not renounced any of his entitlements in such rights issue; and
(ii) the price at which the rights issue is made is not higher than the ex-rights price of the shares
of the target company, being the sum of, –
A) the volume weighted average market price of the shares of the target company during a period
of sixty ending on the day prior to the date of determination of the rights issue price, multiplied
by the number of shares outstanding prior to the rights issue, divided by the total number of

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shares outstanding after allotment under the rights issue. However, such volume weighted
average market price shall be determined on the basis of trading on the stock exchange where
the maximum volume of trading in the shares of such target company is recorded during such
period; and
B) the price at which the shares are offered in the rights issue, multiplied by the number of
shares so offered in the rights issue divided by the total number of shares outstanding after
allotment under the rights issue.
C) increase in voting rights in a target company of any shareholder pursuant to buy -back of
shares. However:
(i) such shareholder has not voted in favour of the resolution authorising the buy -back of securities
under section 68 of the Companies Act, 2013;
(ii) in the case of a shareholder resolution, voting is by way of postal ballot;
(iii) where a resolution of shareholders is not required for the buy-back, such shareholder, in his
capacity as a director, or any other interested director has not voted in favour of the resolution
of the board of directors of the target company authorising the buy-back of securities under
section 68 of the Companies Act, 2013; and
(iv) the increase in voting rights does not result in an acquisition of control by such shareholder
over the target company. However, where the aforesaid conditions are not met, in the event
such shareholder reduces his shareholding such that his voting rights fall below the level at
which the obligation to make an open offer would be attracted under sub-regulation (2) of
regulation 3, within ninety days from the date of closure of the buy-back offer by the target
company, the shareholder shall be exempt from the obligation to make an open offer;
D) acquisition of shares in a target company by any person in exchange for shares of another
target company tendered pursuant to an open offer for acquiring shares under these regulations;
E) acquisition of shares in a target company from state-level financial institutions or their
subsidiaries or companies promoted by them, by promoters of the target company pursuant to
an agreement between such transferors and such promoter;
F) acquisition of shares in a target company from a venture capital fund or Category I Alternative
Investment Fund or a foreign venture capital investor registered with the SEBI, by promoters
of the target company pursuant to an agreement between such venture capital fund or category
I Alternative Investment Fund or foreign venture capital investor and such promoters.

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(5) In respect of acquisitions under clause (a) of sub-regulation (1), and clauses (e) and (f) of
sub-regulation (4), the acquirer shall intimate the stock exchanges where the shares of the
target company are listed, the details of the proposed acquisition in such form as may be
specified, at least four working days prior to the proposed acquisition, and the stock exchange
shall forthwith disseminate such information to the public.

(6) In respect of any acquisition made pursuant to exemption provided for in this regulation, the
acquirer shall file a report with the stock exchanges where the shares of the target company
are listed, in such form as may be specified not later than four working days from the
acquisition, and the stock exchange shall forthwith disseminate such information to the public.

(7) In respect of any acquisition of or increase in voting rights pursuant to exemption provided for
in clause (a) of sub-regulation (1), sub-clause (iii) of clause (d) of sub-regulation (1), clause
(h) of sub-regulation (1), sub regulation (2), sub-regulation (3) and clause (c) of sub-
regulation (4), clauses (a), (b) and (f) of sub-regulation (4), the acquirer shall, within
twenty-one working days of the date of acquisition, submit a report in such form as may be
specified along with supporting documents to SEBI giving all details in respect of acquisitions,
along with a non- refundable fee of rupees one lakh fifty thousand by way of direct credit in
the bank account through NEFT/ RTGS/IMPS or any other mode allowed by RBI or by way of
a, banker’s cheque or demand draft payable in Mumbai in favour of SEBI.

Question: Mr. X is Promoter of ABC (India) Limited (Target Company). Mr. X is presently
holding 53,073 shares constituting 0.52% of the paid up equity capital of the Target Company.
Further, Mr. X has been allotted 75,000 convertible warrants, convertible in to equity. After
conversion of warrant in to equity the shareholding of Mr. X will increase from 0.52% to 1.26%
of the paid up equity capital. Further, Ms. Z who is Mr. X's elder sister's daughter and holding
7,80,000 equity shares constituting 7.76% of the paid up equity share capital of the Company.
Ms. Z is a foreign shareholder and she wanted to gift (Off Market Transaction) her entire
shareholding to her mother Mrs. Y and in turn Mrs. Y wanted to gift the entire shareholding
to Mr. X. If the entire transaction as contemplated, if concluded, then the shareholding of Mr.
X will increase from 0.52% to 9.02% and the shareholding of the promoter group will increase

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from 34.28% to 43.30%. You have been engaged as Practising Company Secretary by Mr. X
to advise on the following:
a) Is this increase in the promoter group shareholding would trigger open offer requirements in
terms of Regulation 3(2) of the SEBI (SAST) Regulation, 2011.
b) Further, Whether such transaction would be exempted under Regulation 10 of the SEBI (SAST)
Regulations, 2011.

Answer: The set of facts as disclosed in the question contains three transactions. First,
conversion of convertible warrants in to equity. Secondly, transfer of shares through off market
transaction from Ms. Z to Mrs. Y and thirdly, transfer of shares through off market transaction
from Mrs. Y to Mr. X. Regarding the first transaction, the trigger and open offer requirements,
if any has to be considered at the time of conversion of warrants in to equity as the same
would depends on the shareholding pattern of the promoter and promoter’s group prevailing at
the time of conversion of warrants in to equity shares. Regarding the second and third
transaction, considering that Ms. Z, Mrs. Y and Mr. X are immediate relative thus they would
be considered as PAC in terms of Regulation 2(1)(q) of the SEBI (SAST) Regulations, 2011.
Therefore, the shareholding of the promoters along with PACs would increase more than 5%
limit and would trigger open offer requirements under Regulation 3(2) of the SEBI (SAST),
2011. However, the transaction is between immediate relatives, the transaction would be exempt
from the obligation to make an open offer as per Regulation 10(1)(a)(i) of the SEBI (SAST),
Regulations, 2011 subject to the compliance with the conditions as mentioned under the proviso
to Regulation 10(1)(a)(i) and Regulation 10(5), (6) and (7) of the SEBI (SAST), Regulations,
2011. Further, SEBI in the interpretative letter dated 18th September, 2015 issued under the
SEBI (Informal Guidance) Scheme, 2003 as requested by M/s Adani Properties Private Limited
has held that an exempt acquisition would not be counted towards computing acquisitions on
a gross basis.

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POWER OF SEBI TO RELAX STRICT ENFORCEMENT OF THE REGULATIONS

Exemption from enforcement of the regulations in special cases

SEBI may, exempt any person or class of persons from the operation of all or any of the
provisions of these regulations for a period as may be specified but not exceeding twelve
months, for furthering innovation in technological aspects relating to testing new products,
processes, services, business models, etc. in live environment of regulatory sandbox in the
securities markets. Any exemption granted by the SEBI shall be subject to the applicant
satisfying such conditions as may be specified by the SEBI including conditions to be complied
with on a continuous basis.

Explanation . — For the purposes of these regulations, “regulatory sandbox” means a live testing
environment where new products, processes, services, business models, etc. may be deployed
on a limited set of eligible customers for a specified period of time, for furthering innovation
in the securities market, subject to such conditions as may be specified by the Board.

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CHAPTER 13 – PROHIBITION OF INSIDER TRADING

INTRODUCTION

Insider trading came into existence from the very inception of trading of securities of a company
and is now a challenge faced by investors all over the world. U.S. was the first country to
formally enact legislation. In India, many committees were formed which made regulations to
keep a check on the practice of insider trading.

The Patel Committee in 1986 in India defined Insider Trading as “Insider trading generally
means trading in the shares of a company by the persons who are in the management of the
company or are close to them on the basis of undisclosed price sensitive information regarding
the working of the company, which they possess but which is not available to others.”

The previous regulations which were formulated in 1992 – SEBI (Insider Trading) Regulations
were punitive and were amended in 2002. The amendment in 2002 came to be known as SEBI
(Prohibition of) Insider Trading) Regulations, 1992 and they were preventive in nature.

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IMPORTANT DEFINITIONS

Insider

"Insider" means any person who is:

i) a connected person; or
ii) in possession of or having access to unpublished price sensitive information;

Connected person
Connected person" means,-
Any person who is or has during the six months prior to the concerned act been
associated with a company, directly or indirectly, in any capacity including by
reason of frequent communication with its officers or by being in any contractual,
fiduciary or employment relationship or by being a director, officer or an employee
of the company or holds any position including a professional or
business relationship between himself and the company whether temporary or
permanent, that allows such person, directly or indirectly, access to unpublished
price sensitive information or is reasonably expected to allow such access.

Person deemed to be connected person

“Person is deemed to be a connected person”, if such person-
(a) an immediate relative of connected persons specified in clause (i); or
(b) a holding company or associate company or subsidiary company; or
(c) an intermediary as specified in section 12 of the Act or an employee or director thereof; or

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(d) an investment company, trustee company, asset management company or an

employee or director thereof; or
(e) an official of a stock exchange or of clearing house or corporation; or
(f) a member of board of trustees of a mutual fund or a member of the board of
directors of the asset management company of a mutual fund or is an employee
thereof; or
(g) a member of the board of directors or an employee, of a public financial
institution as defined in section 2 (72) of the Companies Act, 2013; or
(h) an official or an employee of a self-regulatory organization recognised or
authorized by SEBI; or
(i) a banker of the company; or
(j) a concern, firm, trust, Hindu undivided family, company or association of
persons wherein a director of a company or his immediate relative or banker
of the company, has more than ten per cent of the holding or interest;

Generally available information

"Generally available information" means information that is accessible to the public on a non-
discriminatory basis.

Immediate relative
“Immediate relative” means a spouse of a person, and includes parent, sibling, and
child of such person or of the spouse, any of whom is either dependent financially
on such person, or consults such person in taking decisions relating to trading in
securities;

Trading
"trading" means and includes subscribing, buying, selling, dealing, or agreeing to subscribe, buy,
sell, deal in any securities, and "trade" shall be construed accordingly;

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Unpublished price sensitive information

"Unpublished price sensitive information" means any information, relating to a company or its
securities, directly or indirectly, that is not generally available which upon becoming generally
available, is likely to materially affect the price of the securities and shall, ordinarily including
but not restricted to, information relating to the following: -
(i) Financial results;
(ii) Dividends;
(iii) Change in capital structure;
(iv) Mergers, de-mergers, acquisitions, delisting, disposals and expansion of
business and such other transactions;
(v) Changes in key managerial personnel; and

Extracts from SAT Order dated 12th July 2019 in the matter of Mr. G. Bala Reddy v/s SEBI
In this case a Company had secured work orders but the same were not disclosed to stock
exchange as the contract was not yet issued to the Company and the Company was only found
to be the lowest price bidder. During this period, certain entities had dealt in the shares of
this Company with a contention that being the lowest bidder of a contract is a usual course
of business and hence, does not amount to UPSI. SAT held that considering that the promoter
was aware that the Company was L1 (lowest bidder), this information was UPSI and hence it
was incumbent upon Promoters not to deal in the scrips of the Company directly or indirectly.

Compliance officer
Compliance Officer means
- any senior officer, designated so and reporting to the board of directors or
head of the organization in case board is not there,
- who is financially literate and is capable of appreciating requirements for
legal and regulatory compliance under these regulations and
- who shall be responsible for compliance of policies, procedures, maintenance of records,
monitoring adherence to the rules for the preservation of unpublished price sensitive
information,

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- monitoring of trades and the implementation of the codes specified in these regulations under
the overall supervision of the board of directors of the listed company or the head of an
organization, as the case may be.

COMMUNICATION OR PROCUREMENT OF UNPUBLISHED PRICE SENSITIVE INFORMATION

Regulation 3 provides that any person shall not:

- communicate, provide, or allow access to any unpublished price sensitive information; or
- procure from or cause the communication by any insider of unpublished price sensitive
information;
- relating to a company or securities listed or proposed to be listed except in furtherance of
legitimate purposes, performance of duties or discharge of legal obligations.
- the board of directors of a listed company shall make a policy for determination of “legitimate
purposes” as a part of Code of Fair Disclosure and Conduct. The term “legitimate purpose”
shall include sharing of unpublished price sensitive information in the ordinary course of
business by an insider with partners, collaborators, lenders, customers, suppliers, merchant
bankers, legal advisors, auditors, insolvency professionals or other advisors or consultants,
provided that such sharing has not been carried out to evade or circumvent the prohibitions of
these regulations.
- Any person in receipt of unpublished price sensitive information pursuant to a “legitimate
purpose” shall be considered an “insider” for purposes of these regulations and due notice shall

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be given to such persons to maintain confidentiality of such unpublished price sensitive

information in compliance with these regulations.
- An unpublished price sensitive information may be communicated, provided, allowed access to
or procured, in connection with a transaction that would:-
(i) entail an obligation to make an open offer under the takeover regulations where the board of
directors of the listed company is of informed opinion that sharing of such information is in
the best interests of the company;
(ii) not attract the obligation to make an open offer under the takeover regulations but where the
board of directors of the listed company is of informed opinion that sharing of such information
is in the best interests of the company and the information that constitute unpublished price
sensitive information is disseminated to be made generally available at least two trading days
prior to the proposed transaction being effected in such form as the board of directors may
determine to be adequate and fair to cover all relevant and material facts.
- The board of directors shall require the parties to execute agreements to contract confidentiality
and non-disclosure obligations and such parties shall keep information so received confidential,
except for the purpose specified above and shall not otherwise trade in securities of the
company when in possession of unpublished price sensitive information.
- The board of directors shall ensure that a structured digital database is maintained containing
the names of such persons or entities with whom information is shared under this regulation
along with the Permanent Account Number or any other identifier authorized by law where
Permanent Account Number is not available. Such databases shall be maintained with adequate
internal controls and checks such as time stamping and audit trails to ensure non-tampering
of the database.

Question: What information should a listed Company maintain in its structured digital database
under Regulation 3(5), in case the designated person is a fiduciary or intermediary?

Answer: The listed company should maintain the names of the fiduciary or intermediary with
whom they have shared information along with the Permanent Account Number (PAN) or
other unique identifier authorized by law, in case PAN is not available. The fiduciary /

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intermediary, shall at their end, be required to maintain details as required under the Schedule
C in respect of persons having access to UPSI.

For example: If the listed company has appointed a law firm or Merchant Banker in respect of
fund raising activity, it should obtain the name of the entity, so appointed, along with the
PAN or other identifier, in case PAN is not available. The law firm or the Merchant Banker
would in turn maintain its list of persons along with PAN or other unique identifier (in case
PAN is not available), in accordance with Regulation 9A(2)(d) and as required under Schedule
C, with whom they have shared the unpublished price sensitive information.

TRADING WHEN IN POSSESSION OF UNPUBLISHED PRICE SENSITIVE INFORMATION

Regulation 4 prescribes that insider shall not trade in securities which are listed or proposed
to be listed on stock exchange when in possession of unpublished price sensitive information.

However there are certain exemptions:

1. When there is an off-market transfer between promoters who are aware of price sensitive
information and both parties had made a conscious and informed trade decision. Such off-
market trades shall be reported by the insiders to the company within two working days. Every
company shall notify the particulars of such trades to the stock exchange on which the
securities are listed within two trading days from receipt of the disclosure or from becoming
aware of such information.

2. In the case of non-individual insiders, the individuals who were in possession of such
unpublished price sensitive information were different from the individuals taking trading
decisions and such decision-making individuals were not in possession of such unpublished
price sensitive information when they took the decision to trade; with an assurance that no
unpublished price sensitive information was communicated by the individuals possessing
the information to the individuals taking trading decisions;

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3. The transaction was carried out through the block deal window mechanism between persons
who were in possession of the unpublished price sensitive information without being in breach
of regulation 3 and both parties had made a conscious and informed trade decision;

4. The transaction in question was carried out pursuant to a statutory or regulatory obligation to
carry out a bona fide transaction.

5. The transaction in question was undertaken pursuant to the exercise of stock options in respect
of which the exercise price was pre-determined in compliance with applicable regulations.

6. The trades were pursuant to a trading plan.

In the case of connected persons, the onus of establishing, that they were not in possession
of unpublished price sensitive information, shall be on such connected persons and in other
cases, the onus would be on SEBI. SEBI may specify such standards and requirements, from
time to time, as it may deem necessary for the purpose of these regulations.

Whether creation of a pledge or invocation of pledge is allowed when trading window is

closed?
Yes, however, the pledgor or pledgee may demonstrate that the creation of the pledge or
invocation of pledge was bonafide and prove this innocence under proviso to sub-regulation (1)
of regulation 4.

TRADING PLANS

Regulation 5 states that an insider would be required to submit trading plan in advance to the
compliance officer for his approval. The compliance officer is also empowered to take additional
undertakings from the insiders for approval of the trading plan. Such trading plan on approval
will also be disclosed to the Stock Exchanges, where the securities of the company are listed.

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The trading plan shall comply with requirements as follows:

 It shall be submitted for a minimum period of 12 months.
 No overlapping of plan with the existing plan submitted by Insider.
 It shall set out either the value of trades to be effected or the number of securities to be
traded along with the nature of the trade and the intervals at, or dates on which such trades
shall be effected.
 Trading can commence only after 6 months from public disclosure of plan.
 No trading between 20th day prior to closure of financial period and 2 nd trading day after
disclosure of financial results.
 Compliance officer to approve the plan.
 not entail trading in securities for market abuse.

Rules regarding implementation of Trading Plan

- Pre-clearance of trades shall not be required for a trade executed as per an approved trading
plan.
- Trading window norms and restrictions on contra trade shall not be applicable for trades carried
out in accordance with an approved trading plan.
- The trading plan once approved shall be irrevocable and the insider shall mandatorily have to
implement the plan.
- However, the implementation of the trading plan shall not be commenced if any unpublished
price sensitive information in possession of the insider at the time of formulation of the plan
has not become generally available at the time of the commencement of implementation and
in such event the compliance officer shall confirm that the commencement ought to be deferred
until such unpublished price sensitive information becomes generally available information so
as to avoid a violation of sub-regulation (1) of regulation 4.
- Upon approval of the trading plan, the compliance officer shall notify the plan to the stock
exchanges on which the securities are listed

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Question: Who will be approving authority for trades done by the Compliance Officer or his
immediate relatives, as Insiders?

Guidance: The Board of Directors of the company shall be the approving authority in such
cases and may stipulate such procedures as are deemed necessary to ensure compliance with
these regulations.

Extracts from SEBI’s Interpretive Letter dated 19th July, 2018 issued under the SEBI
(Informal Guidance) Scheme, 2003 in the matter of Hawkins Cookers Ltd. (HCL) regarding
sale of shares by an Independent Director.

Facts of the case:

a) One of the company’s independent directors wants to sell his equity shares of the company.
b) The sale shall be done as per a trading plan in accordance with regulation 4(iii) of the SEBI
(PIT) Regulations, 2015.
c) As per para 8 of Schedule B to the PIT Regulations, while applying for preclearance, the said
director will have to submit an undertaking to the company to the effect that he is not in
possession of any Unpublished Price Sensitive Information (UPSI).
d) By virtue of participation in the Board meetings and access to the information that is shared
at such meetings, the said director is deemed to be perpetually in possession of UPSI. Therefore,
the said undertaking is not possible.

Question:
a) Whether the said director may submit a trading plan as required for a plan to trade shares
above INR 20 lakh in value and proceed with executing the same without giving the said
undertaking.
b) What procedure should be followed by the company and/ or the said director such that the
said director may lawfully execute the trade?

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Guidance from SEBI:

a) Regulation 5 of the PIT Regulations provides exception to the general rule that prohibits trading
by insiders when in possession of UPSI. Further, regulation 5, inter alia, sta tes that the trading
plan shall be approved by the compliance officer and shall not entail trading in securities for
market abuse. In this regard, regulation 5 (3) especially states that the compliance officer
shall review the trading plan to assess whether the plan would have any potential for violation
of PIT Regulations and shall be entitled to seek such express undertakings as may be necessary
to enable such assessment and to approve and monitor the implementation of the plan.
b) In the absence of an approved trading plan, designated persons are subject to the requirements
of code of conduct formulated by the company in terms of regulation 9 read with schedule B
to the PIT Regulations.

DISCLOSURES OF TRADING BY INSIDERS

Regulations 6 (2)
The disclosures to be made by any person shall include those relating to trading by such
person’s immediate relatives, and by any other person for whom such person takes trading
decisions.

Regulations 6(3)
The disclosures of trading in securities shall also include trading in derivatives of securities and
the traded value of the derivatives shall be taken into account for purposes of this Chapter,
provided that trading in derivatives of securities is permitted by any law for the time being in
force.

Regulations 6(4)
The disclosures made shall be maintained by the company, for a minimum period of five years,
in such form as may be specified.

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DISCLOSURES BY CERTAIN PERSONS

Initial Disclosure [Regulation 7 (1)]
(a) Every promoter, key managerial personnel and director of every company whose securities are
listed on any recognised stock exchange shall disclose his holding of securities of the company
as on the date of these regulations taking effect, to the company within thirty days of these
regulations taking effect;
(b) Every person on appointment as a key managerial personnel or a director of the company or
upon becoming a promoter shall disclose his holding of securities of the company as on the
date of appointment or becoming a promoter, to the company within seven days of such
appointment or becoming a promoter.

Continual Disclosures [Regulation 7(2)]

(a) Every promoter, member of the promoter group, designated person and the director of every
company shall disclose to the company the number of such securities acquired or disposed of
within two trading days of such transaction if the value of the securities traded, whether in
one transaction or a series of transactions over any calendar quarter, aggregates to a traded
value in excess of ten lakh rupees or such other value as may be specified;
(b) Every company shall notify the particulars of such trading to the stock exchange on which the
securities are listed within two trading days of receipt of the disclosure or from becoming
aware of such information.

AUTOMATION OF CONTINUAL DISCLOSURES UNDER REGULATION 7(2) – SYSTEM DRIVEN

DISCLOSURES

To begin with, the system driven disclosures shall pertain to trading in equity shares and equity
derivative instruments by the entities.

The Depositories and Stock Exchanges shall make necessary arrangements such that the
disclosures pertaining to PIT Regulations are disseminated on the websites of respective stock
exchanges with effect from October 01, 2020.

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The system would continue to run parallel with the existing system i.e. entities shall continue
to independently comply with the disclosure obligations under PIT Regulations as applicable to
them till March 31, 2021. As currently done, the disclosures generated through the system
shall be displayed separately from the regular disclosures filed with the exchanges.

DISCLOSURES BY OTHER CONNECTED PERSONS

Any company whose securities are listed on a stock exchange may require any other connected
person or class of connected persons to make disclosures of holdings and trading in securities
of the company in such form and at such frequency as may be determined by the company.

This is an enabling provision for listed companies to seek information from those to whom it
has to provide unpublished price sensitive information. This provision confers discretion on any
company to seek such information. For example, a listed company may ask that a management
consultant who would advise it on corporate strategy and would need to review unpublished
price sensitive information, should make disclosures of his trades to the company.

CODE OF FAIR DISCLOSURE (REGULATION 8)

(1) The board of directors of every company, whose securities are listed on a stock exchange, shall
formulate and publish on its official website, a code of practices and procedures for fair
disclosure of unpublished price sensitive information that it would follow in order to adhere to
each of the principles set out in Schedule A to these regulations, without diluting the provisions
of these regulations in any manner.
(2) Every such code of practices and procedures for fair disclosure of unpublished price sensitive
information and every amendment thereto shall be promptly intimated to the stock exchanges
where the securities are listed.

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PRINCIPLES OF FAIR DISCLOSURE FOR PURPOSES OF CODE OF PRACTICES AND

PROCEDURES FOR FAIR DISCLOSURE OF UNPUBLISHED PRICE SENSITIVE INFORMATION -
SCHEDULE A [Sub-regulation (1) of Regulation 8]:
1. Prompt public disclosure of unpublished price sensitive information that would impact price
discovery.
2. Uniform dissemination of unpublished price sensitive information to avoid selective disclosure.
3. Designation of a senior officer as a chief investor relations officer to deal with dissemination
of information and disclosure of unpublished price sensitive information.
4. Appropriate and fair response to queries on news reports and requests for verification of market
rumours by regulatory authorities.
5. Ensuring that information shared with analysts and research personnel is not unpublished price
sensitive information.
6. Developing best practices to make transcripts or records of proceedings of meetings with
analysts and other investor relations conferences on the official website to ensure official
confirmation and documentation of disclosures made.
7. Handling of all unpublished price sensitive information on a need-to-know basis.

MINIMUM STANDARDS FOR CODE OF CONDUCT

The regulations lay down the following minimum standards for Code of Conduct to regulate,
monitor and report trading by insiders :-
1. The compliance officer shall report to the board of directors and in particular, shall provide
reports to the Chairman of the Audit Committee, if any, or to the Chairman of the board of
directors at such frequency as may be stipulated by the board of directors.
2. All information shall be handled within the organisation on a need-to-know basis and no
unpublished price sensitive information shall be communicated to any person except in
furtherance of the insider’s legitimate purposes, performance of duties or discharge of his legal
obligations.
3. The code of conduct shall contain norms for appropriate Chinese Walls
procedures, and processes for permitting any designated person to “cross the wall”.

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4. Employees and connected persons designated on the basis of their

functional role (“designated persons”) in the organisation shall be governed by an
internal code of conduct governing dealing in securities.
5. The trading window shall be closed when the compliance officer determines
that a designated person or class of designated persons can reasonably be
expected to have possession of unpublished price sensitive information.
Such closure shall be imposed in relation to such securities to which such
unpublished price sensitive information relates.
6. Designated persons and their immediate relatives shall not trade in
securities when the trading window is closed.
7. The timing for re-opening of the trading window shall be determined by the
compliance officer taking into account various factors including the
unpublished price sensitive information in question becoming generally
available and being capable of assimilation by the market, which in any
event shall not be earlier than forty-eight hours after the information
becomes generally available.
8. The trading window shall also be applicable to any person having
contractual or fiduciary relation with the company, such as auditors,
accountancy firms, law firms, analysts, consultants etc., assisting, or
advising the company.
9. When the trading window is open, trading by designated persons shall be
subject to preclearance by the compliance officer, if the value of the
proposed trades is above such thresholds as the board of directors may
stipulate. No designated person shall apply for pre-clearance of any proposed trade if
such designated person is in possession of unpublished price sensitive information even if the
trading window is not closed.
10. The compliance officer shall confidentially maintain a list of such securities
as a “restricted list” which shall be used as the basis for approving or
rejecting applications for preclearance of trades.
11. Prior to approving any trades, the compliance officer shall be entitled to
seek declarations to the effect that the applicant for pre-clearance is not in

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possession of any unpublished price sensitive information. He shall also

have regard to whether any such declaration is reasonably capable of being
rendered inaccurate.
12. The code of conduct shall specify any reasonable timeframe, which in any
event shall not be more than seven trading days, within which trades that
have been pre-cleared have to be executed by the designated person, failing
which fresh pre-clearance would be needed for the trades to be executed.
13. The code of conduct shall specify the period, which in any event shall not
be less than six months, within which a designated person who is permitted
to trade shall not execute a contra trade. The compliance officer may be
empowered to grant relaxation from strict application of such restriction for
reasons to be recorded in writing provided that such relaxation does not
violate these regulations. Should a contra trade be executed, inadvertently or
otherwise, in violation of such a restriction, the profits from such trade shall be liable to be
disgorged for remittance to SEBI for credit to the Investor Protection and Education Fund
administered by SEBI under the Act.
14. Designated persons shall be required to disclose names and Permanent Account Number or any
other identifier authorized by law of the following persons to the company on an annual basis
and as and when the information changes:
a) immediate relatives
b) persons with whom such designated person(s) shares a material financial relationship
c) Phone, mobile and cell numbers which are used by them.
d) the names of educational institutions from which designated persons have graduated and names
of their past employers shall also be disclosed on a one time basis.
Explanation - The term “material financial relationship” shall mean a relationship in which one
person is a recipient of any kind of payment such as by way of a loan or gift during the
immediately preceding twelve months, equivalent to at least 25% of such payer’s annual income
but shall exclude relationships in which the payment is based on arm’s length transactions.

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ALLOWING OFFER FOR SALE (OFS) AND RIGHTS ENTITLEMENTS (RE) TRANSACTIONS
DURING TRADING WINDOW CLOSURE PERIOD
It has been decided that trading window restrictions shall not apply in respect of OFS and RE
transactions carried out in accordance with the framework specified by the Board.

REPORTING TO STOCK EXCHANGES REGARDING VIOLATIONS RELATING TO THE CODE OF

CONDUCT (COC)
The listed companies, intermediaries and fiduciaries shall promptly inform the Stock
Exchange(s) where the concerned securities are traded, regarding violations relating to CoC
under PIT Regulations in such modified form and manner as may be specified by the Board.

PENALTY FOR INSIDER TRADING UNDER SECTION 15G OF SEBI ACT

If any Insider who either on his own behalf or on behalf of any other person, deals in securities
of a body corporate listed on any stock exchange on the basis of any unpublished price
sensitive information; or communicates any unpublished price sensitive information to any
person, he shall be liable to a penalty, which shall not be less than ten lakh rupees but which
may extend to twenty-five crore rupees or three times the amount of profits made out of
insider trading, whichever is higher.

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Violation of the provisions of these regulations attract huge monetary penalty and may lead to
criminal prosecution. However those aggrieved by an order of SEBI, may prefer an appeal to
the Securities Appellate Tribunal within a period of forty-five days of the order.

AMOUNT REMITTED TO INVESTOR PROTECTION AND EDUCATION FUND (IPEF)

Any amount collected by the listed companies, intermediaries and fiduciaries for violation(s)
of CoC shall be remitted to the Board for credit to the Investor Protection and Education Fund
(IPEF) administered by the Board under SEBI Act, 1992.

Such amounts shall be credited to the IPEF through the online mode or by way of a demand
draft (DD) in favour of the Board (i.e. SEBI – IPEF) payable at Mumbai.

ROLE OF COMPANY SECRETARY IN COMPLIANCE REQUIREMENTS

 The Company Secretary shall act as Compliance Officer and ensure

compliance with SEBI (Prohibition of insider Trading) Regulations, 2015
including maintenance of various documents.
 To frame a code of fair disclosure and conduct in line with the model code
specified in the Schedule A of the regulations and get the same approved
by the board of directors of the company.

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 To place before the board the “minimum standards for Code of Conduct”
to regulate, monitor and report trading by insiders as enumerated in the
Schedule B of the regulations.
 To receive initial disclosure from every Promoter, KMP and director or
every person on appointment as KMP or director or becoming a Promoter
 To receive from every Promoter, employee and director, continual
disclosures of the number of securities acquired or disposed of and changes
therein, even if the value of the securities traded, exceeds Rs 10 lakh with
single or series of transaction in any calendar quarter in prescribed form.
 To ensure that no trading shall between 20th day prior to closure of
financial period and 2nd trading day after disclosure of financial results.
 The compliance officer shall approve the trading plan and after the approval of the trading
plan, the compliance officer shall notify the plan to the stock exchanges on which the
securities are listed.
 The Compliance Officer shall maintain records of all the declarations given
by the directors/designated employees/partners in the appropriate form for
a minimum period of three years.

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INFORMANT INCENTIVES AND REWARDS

A new Chapter IIIA has been prescribed under the Regulation for incentive and reward for the
informants who submits to the SEBI a Voluntary Information Disclosure relating to any alleged
violation of insider trading laws that has occurred, in occurring or has a reasonable belief that
it is about to occur. The new provisions prescribes the manner of submitting information,
various forms and procedure for determination of rewards and confidentiality of informants.

INFORMANT

‘Informant’ means an individual(s), who voluntarily submits to the SEBI a Voluntary

Information Disclosure Form relating to an alleged violation of insider trading laws that has
occurred, is occurring or has a reasonable belief that it is about to occur, in a manner provided
under these regulations, regardless of whether such individual(s) satisfies the requirements,
procedures and conditions to qualify for a reward.

SUBMISSION OF ORIGINAL INFORMATION TO THE BOARD [REGULATION 7 (B)]

An Informant shall submit Original Information by furnishing the Voluntary Information

Disclosure Form to the Office of Informant Protection of the SEBI in the format and manner
set out in Schedule D. The Voluntary Information Disclosure Form may be submitted through
informant’s legal representative.

However where the Informant does not submit the Voluntary Information Disclosure Form
through a legal representative, the SEBI may require such Informant to appear in person to
ascertain his/her identity and the veracity of the information so provided.

The legal representative shall,-

i. Verify the identity and contact details of the Informant;
ii. Unless otherwise required by the SEBI, maintain confidentiality of the identity and existence
of the Informant, including the original Voluntary Information Disclosure Form;

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iii. Undertake and certify that he/she,-

(a) Has reviewed the completed and signed Voluntary Information Disclosure Form for completeness
and accuracy and that the information contained therein is true, correct and complete to the
best of his/her knowledge;
(b) Has obtained a irrevocable consent from the Informant to provide to the Board with original
Voluntary Information Disclosure Form whenever required by the SEBI; and
(c) Agrees to be legally obligated to provide the original Voluntary Information Disclosure Form
within seven (7) calendar days of receiving such requests from the SEBI
iv. Submits to the SEBI, the copy of the Voluntary Information Disclosure Form in the manner
provided in Schedule D of these regulations along with a signed certificate as required under
clause (iii).

An Informant shall while submitting the Voluntary Information Disclosure Form shall expunge
such information from the content of the information which could reasonably be expected to
reveal his or her identity and in case where such information cannot be expunged, the Informant
may identify such part of information or any document that the Informant believes could
reasonably be expected to reveal his or her identity.

INSTITUTIONAL MECHANISM FOR PREVENTION OF INSIDER TRADING [REGULATION 9A]

- The Chief Executive Officer, Managing Director or such other analogous person of a listed
company, intermediary or fiduciary shall put in place adequate and effective system of internal
controls to ensure compliance with the requirements given in these regulations to prevent
insider trading. The internal controls shall include the following:
(a) all employees who have access to unpublished price sensitive information are identified as
designated person;
(b) all the unpublished price sensitive information shall be identified and its confidentiality shall
be maintained as per the requirements of these regulations;
(a) adequate restrictions shall be placed on communication or procurement of unpublished price
sensitive information as required by these regulations;

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(c) lists of all employees and other persons with whom unpublished price sensitive information is
shared shall be maintained and confidentiality agreements shall be signed or notice shall be
served to all such employees and persons;
(b) all other relevant requirements specified under these regulations shall be complied with;
(d) periodic process review to evaluate effectiveness of such internal controls.
- The board of directors of every listed company and the board of directors or head(s) of the
organisation of intermediaries and fiduciaries shall ensure that the Chief Executive Officer or
the Managing Director or such other analogous person ensures compliance with these
regulations.
- The Audit Committee of a listed company or other analogous body for intermediary or fiduciary
shall review compliance with the provisions of these regulations at least once in a financial
year and shall verify that the systems for internal control are adequate and are operating
effectively.
- Every listed company shall formulate written policies and procedures for inquiry in case of leak
of unpublished price sensitive information or suspected leak of unpublished price sensitive
information, which shall be approved by board of directors of the company and accordingly
initiate appropriate inquiries on becoming aware of leak of unpublished price sensitive
information or suspected leak of unpublished price sensitive information and inform the Board
promptly of such leaks, inquiries and results of such inquiries.
- The listed company shall have a whistle-blower policy and make employees aware of such policy
to enable employees to report instances of leak of unpublished price sensitive information.
- If an inquiry has been initiated by a listed company in case of leak of unpublished price
sensitive information or suspected leak of unpublished price sensitive information, the relevant
intermediaries and fiduciaries shall co-operate with the listed company in connection with such
inquiry conducted by listed company.

APPEAL TO SECURITIES APPELLATE TRIBUNAL

Violation of the provisions of these regulations attract huge monetary penalty and may lead to
criminal prosecution. However those aggrieved by an order of SEBI, may prefer an appeal to
the Securities Appellate Tribunal within a period of forty-five days of the order.

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CHAPTER 14 – PROHIBITION OF FRAUDULENT AND UNFAIR TRADE

PRACTICES RELATING TO SECURITIES MARKET

SEBI (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO

SECURITIES MARKET) REGULATIONS, 2003

Dealing in Securities
Dealing in Securities includes:
(a) an act of buying, selling or subscribing pursuant to any issue of any security or agreeing to
buy, sell or subscribe to any issue of any security or otherwise transacting in any way in any
security by any persons including as principal, agent, or intermediary referred to in section 12
of the SEBI Act;
(b) such acts which may be knowingly designed to influence the decision of investors in securities;
and
(c) any act of providing assistance to carry out the aforementioned acts.

Fraud
Fraud includes any act, expression, omission or concealment committed whether in a deceitful
manner or not by a person or by any other person with his connivance or by his agent while
dealing in securities in order to induce another person or his agent to deal in securities, whether
or not there is any wrongful gain or avoidance of any loss, and shall also include—
(1) a knowing misrepresentation of the truth or concealment of material fact in order that another
person may act to his detriment;
(2) a suggestion as to a fact which is not true by one who does not believe it to be true;
(3) an active concealment of a fact by a person having knowledge or belief of the fact;
(4) a promise made without any intention of performing it;
(5) a representation made in a reckless and careless manner whether it be true or false;
(6) any such act or omission as any other law specifically declares to be fraudulent;
(7) deceptive behaviour by a person depriving another of informed consent or full participation;
(8) a false statement made without reasonable ground for believing it to be true;
(9) the act of an issuer of securities giving out misinformation that affects the market price of
the security, resulting in investors being effectively misled even though they did not rely on
the statement itself or anything derived from it other than the market price

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Exceptions to ‘Fraud’
Regulation 2 (1) (c) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices)
Regulations, 2003 provides for certain exceptions to ‘Fraud’ and states that nothing contained
in the clause shall apply to any general comments made in good faith in regard to-
(a) the economic policy of the government
(b) the economic situation of the country
(c) trends in the securities market or
(d) any other matter of a like nature
whether such comments are made in public or in private.

Investigating Authority
“Investigating Authority” means any person authorized by the SEBI to undertake investigation.

PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO THE

SECURITIES MARKET

Prohibition of certain dealings in securities [Regulation 3]:

No person shall directly or indirectly –
(a) buy, sell or otherwise deal in securities in a fraudulent manner;
(b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to
be listed, any manipulative or deceptive device or contrivance in contravention of the provisions
of the SEBI Act or the rules or the regulations;
(c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of
securities which are listed or proposed to be listed on a recognized stock exchange;
(d) engage in any act, practice, course of business which operates or would operate as fraud or
deceit upon any person in connection with any dealing in or issue of securities which are listed
or proposed to be listed on a recognized stock exchange in contravention of the provisions of
the SEBI Act or the rules and the regulations made there under.

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Prohibition of Manipulative, Fraudulent and Unfair Trade Practices [Regulation 4]:

(1) Any act of diversion, mis-utilisation or siphoning off of assets or earnings of a company whose
securities are listed or any concealment of such act or any device, scheme or artifice to
manipulate the books of accounts or financial statement of such a company that would directly
or indirectly manipulate the price of securities of that company shall be and shall always be
deemed to have been considered as manipulative, fraudulent and an unfair trade practice in
the securities market.

(2) Further, any dealing in securities shall be deemed to be a manipulative, fraudulent or an unfair
trade practice if it involves any of the following:—
(a) knowingly indulging in an act which creates false or misleading appearance of trading in the
securities market;
(b) dealing in a security not intended to effect transfer of beneficial ownership but intended to
operate only as a device to inflate, depress or cause fluctuations in the price of such security
for wrongful gain or avoidance of loss;
(c) inducing any person to subscribe to an issue of the securities for fraudulently securing the
minimum subscription to such issue of securities, by advancing or agreeing to advance any
money to any other person or through any other means;
(d) inducing any person for dealing in any securities for artificially inflating, depressing, maintaining
or causing fluctuation in the price of securities through any means including by paying, offering
or agreeing to pay or offer any money or money’s worth, directly or indirectly, to any person;
(e) any act or omission amounting to manipulation of the price of a security including, influencing
or manipulating the reference price or bench mark price of any securities;
(f) knowingly publishing or causing to publish or reporting or causing to report by a person dealing
in securities any information relating to securities, including financial results, financial
statements, mergers and acquisitions, regulatory approvals, which is not true or which he does
not believe to be true prior to or in the course of dealing in securities;
(g) entering into a transaction in securities without intention of performing it or without intention
of change of ownership of such security;
(h) selling, dealing or pledging of stolen, counterfeit or fraudulently issued securities whether in
physical or dematerialized form;

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Provided that if:-

(1) the person selling, dealing in or pledging stolen, counterfeit or fraudulently issued securities
was a holder in due course; or
(2) the stolen, counterfeit or fraudulently issued securities were previously traded on the market
through a bonafide transaction;
(3) such selling, dealing or pledging of stolen, counterfeit or fraudulently issued securities shall not
be considered as a manipulative, fraudulent, or unfair trade practice.
(i) disseminating information or advice through any media, whether physical or digital, which the
disseminator knows to be false or misleading in a reckless or careless manner and which is
designed to, or likely to influence the decision of investors dealing in securities;
(j) a market participant entering into transactions on behalf of client without the knowledge of
or instructions from client or misutilizing or diverting the funds or securities of the client held
in fiduciary capacity;
(k) circular transactions in respect of a security entered into between persons including
intermediaries to artificially provide a false appearance of trading in such security or to inflate,
depress or cause fluctuations in the price of such security;
(l) fraudulent inducement of any person by a market participant to deal in securities with the
objective of enhancing his brokerage or commission or income;
(m) an intermediary predating or otherwise falsifying records including contract notes, client
instructions, balance of securities statement, client account statements;
(n) any order in securities placed by a person, while directly or indirectly in possession of
information that is not publically available, regarding a substantial impending transaction in
that securities, its underlying securities or its derivative;
(o) Knowingly planting false or misleading news which may induce sale or purchase of securities;
(p) mis-selling of securities or services relating to securities market;
Mis-selling means sale of securities or services relating to securities market by any person,
directly or indirectly, by-
- knowingly making a false or misleading statement, or
- knowingly concealing or omitting material facts, or
- knowingly concealing the associated risk, or
- not taking reasonable care to ensure suitability of the securities or service to the buyer.

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(q) illegal mobilization of funds by sponsoring or causing to be sponsored or carrying on or causing

to be carried on any collective investment scheme by any person.
ONE PERSON COMPANY (OPC) [SECTION 2(62)]
INVESTIGATION

Power of the SEBI to order investigation [Regulation 5]:

Where the SEBI, the Chairman, the member or the Executive Director (hereinafter referred to
as “appointing authority”) has reasonable ground to believe that—
(a) the transactions in securities are being dealt with in a manner detrimental to the investors or
the securities market in violation of these regulations;
(b) any intermediary or any person associated with the securities market has violated any of the
provisions of the Act or the rules or the regulations,
it may, at any time by order in writing, direct any person (Investigating Authority) specified
in the order to investigate the affairs of such intermediary or persons associated with the
securities market or any other person and to report thereon to the SEBI.

Powers of Investigating Authority [Regulation 6]:

Without prejudice to the powers conferred under the SEBI Act, the Investigating Authority shall
have the following powers for the conduct of investigation, namely:—
(1) to call for information or records from any person;
(2) to undertake inspection of any book, or register, or other document or record of any listed
public company or a public company (not being intermediaries referred to in section 12 of the
Act) which intends to get its securities listed on any recognized stock exchange where the
Investigating Authority has reasonable grounds to believe that such company has been
conducting its activities in violation of these regulations;
(3) to require any intermediary or any person associated with securities market in any manner to
furnish such information to, or produce such books, or registers, or other documents, or record
before him or any person authorized by him in this behalf as he may consider necessary if
the furnishing of such information or the production of such books, or registers, or other
documents, or record is relevant or necessary for the purposes of the investigation;

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(4) to keep in his custody any books, registers, other documents and record produced for a
maximum period of six months. However, the Investigating Authority may call for any book,
register, other document or record if the same is needed again. Further, if the person on whose
behalf the books, registers, other documents and record are produced requires certified copies
of the books, registers, other documents and record produced before the Investigating
Authority, he shall give certified copies of such books, registers, other documents and record
to such person or on whose behalf the books, registers, other documents and record were
produced;
(5) to examine orally and to record the statement of the person concerned or any director, partner,
member or employee of such person and to take notes of such oral examination to be used
as an evidence against such person. However, the said notes shall be read over to, or by, and
signed by, the person so examined;
(6) to examine on oath any manager, managing director, officer or other employee of any
intermediary or any person associated with securities market in any manner in relation to the
affairs of his business and may administer an oath accordingly and for that purpose may
require any of those persons to appear before him personally;
(7) to call for information and record from any person including any bank or any other authority
or board or corporation established or constituted by or under any Central, State or Provincial
Act in respect of any transaction in securities which are under investigation;
(8) to make an application to the Judge of the designated court in Mumbai as notified by the
Central Government for an order for the seizure of any books, registers, other documents and
record, if in the course of investigation, the Investigating Authority has reasonable ground to
believe that such books, registers, other documents and record of, or relating to, any
intermediary or any person associated with securities market in any manner may be destroyed,
mutilated, altered, falsified or secreted;
(9) to keep in his custody the books, registers, other documents and record seized under these
regulations for such period not later than the conclusion of the investigation as he considers
necessary and thereafter to return the same to the person, the company or the other body
corporate, or, as the case may be, to the managing director or the manager or any other
person from whose custody or power they were seized. However, the Investigating Authority

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may, before returning such books, registers, other documents and record as aforesaid, place
identification marks on them or any part thereof;
(10) every search or seizure made under this regulation shall be carried out in accordance with the
provisions of the Code of Criminal Procedure, 1973 relating to searches or seizures made under
that Code.

Duty to co-operate, etc. [Regulation 8]:

(1) It shall be the duty of every person in respect of whom an investigation has been ordered –
(a) to produce to the Investigating Authority or any person authorized by him such books, accounts
and other documents and record in his custody or control and to furnish such statements and
information as the Investigating Authority or the person so authorized by him may reasonably
require for the purposes of the investigation;
(b) to appear before the Investigating Authority personally when required to do so by him under
regulation 6 to answer any question which is put to him by the Investigating Authority.
(2) Without prejudice to the provisions of the Companies Act, 2013, it shall be the duty of every
manager, managing director, officer and other employee of the company and every intermediary
referred to in section 12 of the SEBI Act or every person associated with the securities market
to preserve and to produce to the Investigating Authority or any person authorized by him in
this behalf, all the books, registers, other documents and record of, or relating to, the company
or, as the case may be, of or relating to, the intermediary or such person, which are in their
custody or power.
(3) Such person shall—
(a) allow the Investigating Authority or any person authorized by him in this behalf to have access
to the premises occupied by such person at all reasonable times for the purpose of investigation;
(b) extend to the Investigating Authority or any person authorized by him in this behalf reasonable
facilities for examining any books, accounts and other documents in his custody or control
(whether kept manually or in computer or in any other form) reasonably required for the
purposes of the investigation;
(c) provide to such Investigating Authority or any person authorized by him in this behalf any
such books, accounts and records which, in the opinion of the Investigating Authority, are

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relevant to the investigation or, as the case may be, allow the Investigating Authority or any
person authorized by him in this behalf to take computer print-outs thereof.

Submission of report to SEBI [Regulation 9]:

The Investigating Authority shall, on completion of investigation, after taking into account all
relevant facts, submit a report to the appointing authority. However, the Investigating Authority
may submit an interim report pending completion of investigations if he considers necessary.

Enforcement by the SEBI [Regulation 10 and 11]:

If SEBI is satisfied that there is a violation of these regulations and after giving a reasonable
opportunity of hearing to the persons concerned, may issue directions or take action.

Further, the SEBI may, in the interest of investors and securities market, dispense with the
opportunity of predecisional hearing by recording reasons in writing and shall give an opportunity
of post-decisional hearing to the persons concerned as expeditiously as possible.

SEBI may, by an order, for reasons to be recorded in writing, issue or take any of the following
actions or directions, either pending investigation or enquiry or on completion of such
investigation or enquiry, namely:—
(a) suspend the trading of the security found to be or prima facie found to be involved in fraudulent
and unfair trade practice in a recognized stock exchange;
(b) restrain persons from accessing the securities market and prohibit any person associated with
securities market to buy, sell or deal in securities;
(c) suspend any office-bearer of any stock exchange or self-regulatory organization from holding
such position;
(d) impound and retain the proceeds or securities in respect of any transaction which is in violation
or prima facie in violation of these regulations;
(e) direct any intermediary or any person associated with the securities market in any manner not
to dispose of or alienate an asset forming part of a fraudulent and unfair transaction;
(f) require the person concerned to call upon any of its officers, other employees or representatives
to refrain from dealing in securities in any particular manner;

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(g) prohibit the person concerned from disposing of any of the securities acquired in contravention
of these regulations;
(h) direct the person concerned to dispose of any such securities acquired in contravention of these
regulations, in such manner as the SEBI may deem fit, for restoring the status quo ante.

Any final order passed under sub-regulation (1) shall be put on the website of the SEBI.

Manner of service of summons and notices issued by the SEBI [Regulation 11A]:
(1) A summons or notice issued by the SEBI shall be served on the person through any of the
following modes, namely—
(a) by delivering or tendering it to that person or his duly authorised agent; or
(b) by sending it to the person by fax or electronic mail or electronic instant messaging services
along with electronic mail or by courier or speed post or registered post;

However, the courier or speed post or registered post shall be sent to the address of his place
of residence or his last known place of residence or the place where he carried on, or last
carried on, business or personally works, or last worked, for gain, with acknowledgment due;

Further, a summons or notice sent by fax shall bear a note that the same is being sent by
fax and in case the document contains annexure, the number of pages being sent shall also
be mentioned;

Also, a summons or notice sent through electronic mail or electronic instant messaging services
along with electronic mail shall be digitally signed by the competent authority and bouncing
of the electronic mail shall not constitute valid service.

(2) In case of failure to serve a summons or notice through any one of the modes as mentioned
above, the summons or notice may be affixed on the outer door or some other conspicuous
part of the premises in which the person resides or is known to have last resided, or carried
on business or personally works, or last worked, for gain and a written report thereof shall be
prepared in the presence of two witnesses.

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(3) In case of failure to affix the summons or notice on the outer door as provided under sub-
regulation (2), the summons or notice shall be published in at least two newspapers, one of
which shall be in an English daily newspaper having nationwide circulation and another shall
be in a newspaper having wide circulation published in the language of the region where that
person was last known to have resided or carried on business or personally worked for gain.

SUSPENSION OR CANCELLATION OF REGISTRATION [REGULATION 12]

The SEBI may, without prejudice to any action under the securities laws or directions or
circulars issued thereunder, by an order, for reasons to be recorded in writing, in the interests
of investors and securities market take the following action against an intermediary:
(a) issue a warning or censure;
(b) suspend the registration of the intermediary; or
(c) cancel of the registration of the intermediary.

However, no final order of suspension or cancellation of an intermediary for violation of these

regulations shall be passed unless the procedure specified applicable to such intermediary under
the SEBI [(Intermediaries) Regulations, 2008] is complied with.

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YouTube - YES Academy for CS and Law In Karma, I Believe.. Chapter 15 – Delisting

CHAPTER 15 - DELISTING OF EQUITY SHARES

Delisting denotes removal of the listing of the securities of a listed company from the Stock
Exchange. Delisting differs from suspension or withdrawal of admission to dealings of listed
securities, which is for a limited period.

‘Suspension’ of trading in securities means that no trade can take place in the securities of
the company suspended for a temporary period. Suspension is not done at the instance of
company but it is action taken by the Stock Exchanges against the company, generally for
non-compliance of listing conditions.

‘Delisting’ of securities means removal of the name of the company from the stock exchange
and no trade can take place in the securities of the company delisted. Delisting of securities
can be done either by company voluntarily or by the stock exchange, compulsorily.

Delisting of securities may be of two types, namely, voluntary delisting and compulsory delisting.
In the case of voluntary delisting, a listed company seeks of its own volition for the delisting
of its securities; while in case of compulsory delisting, the Stock Exchange itself delists the
securities of such Company.

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VOLUNTARY DELISTING

In voluntary delisting, a listed company decides on its own to permanently remove its securities
from a stock exchange. SEBI (Delisting of Shares) Regulations 2009 gives an option to the
listed company to either get itself delisted from all the recognised stock exchanges where it is
listed or only from some of the few stock exchanges and continue to be listed on the
exchange(s) having nation wide terminals.

The difference between two options is that of giving ‘exit opportunity’ to the shareholders.

- No exit opportunity required to be given: In this option, if after the proposed delisting from
any one or more recognised stock exchanges, the equity shares still remain listed on any
recognised stock exchange which has nation-wide trading terminals, no exit opportunity
needs to be given to the public shareholders.

- Exit opportunity must be given: This option requires that if after the proposed
delisting, the equity shares do not remain listed on any recognised stock exchange having
nation-wide trading terminals, exit opportunity shall be given to all the public shareholders.

DELISTING FROM All THE STOCK EXCHANGES EXCEPT ONE

A company may delist its equity shares from one or more stock exchanges where they are
listed and continue their listing on other stock exchanges, if after the proposed delisting the
equity shares would:
(i) Remain listed on any recognized stock exchange which has nationwide trading terminals,
no exit opportunity needs to be given to the public shareholders; and
(ii) Not remain listed on any recognized stock exchange having nationwide trading terminals, exit
opportunity shall be given to all the public shareholders holding the equity shares sought to be
delisted.

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PROCEDURE FOR DELISTING FROM ALL THE STOCK EXCHANGES EXCEPT ONE

(i) The Company shall obtain approval from the Board of Directors with regard to delisting of
equity shares from one or more stock exchanges.
(ii) Thereafter, the company shall give a public notice of the proposed delisting in at least one
English national daily with wide circulation, one Hindi national daily with wide circulation and
one regional language newspaper of the region where the concerned stock exchanges are located.
(iii) The Company shall make an application to the stock exchange for delisting of shares.
(iv) Concerned Stock Exchange shall dispose the application within 30 working days from the date
of receipt of complete application.

DELISTING FROM ALL STOCK EXCHANGES

CONDITIONS AND PROCEDURE FOR DELISTING WHERE EXIT OPPORTUNITY IS REQUIRED

Regulation 7 provides that the equity shares of a company may be delisted from all the
recognised stock exchanges having nationwide trading terminals on which they are listed, after
an exit opportunity has been provided by the acquirer.

Initial public announcement (Regulation 8)

On the date when the acquirer decides to voluntarily delist the equity shares of the company,
it shall make an initial public announcement to all the stock exchanges on which the shares
of the company are listed and the stock exchanges shall forthwith disseminate the same to
the public.

A copy of the initial public announcement shall also be sent to the company at its registered
office not later than one working day from the date of the initial public announcement.

Appointment of the manager to the offer (Regulation 9)

Prior to making an initial public announcement, the acquirer shall appoint a merchant banker
registered with the SEBI as the Manager to the offer. The Manager to the offer shall not be
an associate of the acquirer.

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Obligation of the manager to the offer (Regulation 29)

Before making the detailed public announcement, the Manager to the offer for delisting of
equity shares shall ensure that, —
- the acquirer is able to implement the delisting offer.
- firm arrangements for funds through verifiable means have been made by the acquirer to meet
the payment obligations under the delisting offer.
- the contents of the initial public announcement, the detailed public announcement, the letter
of offer and the post-bidding advertisement(s) are complete, true, fair and adequate in all
material aspects.
- market intermediaries are registered with the SEBI.
- the Manager to the offer shall exercise due diligence, care and professional judgment to ensure
compliance with these regulations.
- the Manager to the offer shall not, either directly or indirectly through its associates, deal in
its own account in the shares of the company after its appointment as Manager to the offer
till the conclusion of the delisting offer.
- the Manager to the offer to ensure that the acquirer complies with the provisions of these
regulations.

Approval by the Board of Directors (Regulation 10)

The company shall obtain the approval of its Board of Directors in respect of the proposal, not
later than twenty one days from the date of the initial public announcement.

The Board of Directors of the company, while considering the proposal for delisting, shall certify
that—
(a) the company is in compliance with the applicable provisions of securities laws;
(b) the acquirer and its related entities are in compliance with the applicable provisions of securities
laws;
(c) the delisting is in the interest of the shareholders of the company.

While communicating the decision of the Board of Directors on the proposal for delisting of
equity shares, the company shall also submit to the recognized stock exchanges on which the

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equity shares of the company are listed, the due - diligence report of the Company Secretary
and the audit report under SEBI (Depositories and Participants) Regulations, 2018.

Upon receipt of the above mentioned communication, the stock exchanges shall forthwith
disseminate the same to the public.

Appointment of peer reviewer Company Secretary to carry out the Due-Diligence

The Board of Directors of the company, before considering the proposal of delisting, shall
appoint a Peer Reviewer Company Secretary and provide the following information to such
Company Secretary for carrying out due-diligence: -
(a) the details of buying, selling and dealing in the equity shares of the company by the acquirer
or its related entities during the period of two years prior to the date of board meeting held
to consider the proposal for delisting, including the details of the top twenty five shareholders,
for the said period;
(b) the details of off-market transactions of all the shareholders mentioned in clause (a) for a
period of two years;
(c) additional information, if any. Company Secretary is of the opinion that the information provided
under clauses (a) and (b) is not sufficient for providing the certification.

After obtaining the information from the Board of Directors, the Company Secretary shall carry
out the due-diligence and submit a report to the Board of Directors of the company certifying
that the buying, selling and dealing in the equity shares of the company carried out by the
acquirer or its related entities and the top twenty five shareholders is in compliance with the
applicable provisions of securities laws including these regulations.

Approval by shareholders (Regulation 11)

The company shall obtain the approval of the shareholders through a special resolution, not
later than forty five days from the date of obtaining the approval of Board of Directors. The
special resolution shall be passed through postal ballot and / or e-voting as per the applicable
provisions of the Companies Act, 2013.

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In-principle approval of the stock exchange (Regulation 12)

The company shall make an application to the relevant recognised stock exchange for in-
principle approval of the proposed delisting of its equity shares in the Form specified, not later
than fifteen working days from the date of passing of the special resolution or receipt of any
other statutory or regulatory approval, whichever is later.

The application seeking in-principle approval for the delisting of equity shares shall be
accompanied by an audit report as required under regulation 76 of the SEBI (Depositories and
Participants) Regulations, 2018 in respect of the equity shares sought to be delisted, covering
a period of six months prior to the date of the application.

Such application seeking in-principle approval for the delisting of the equity shares shall be
disposed of by the recognised stock exchange within a period not exceeding, fifteen working
days from the date of receipt of such application that is complete in all respects.

Escrow account (Regulation 14)

The acquirer shall open an interest bearing escrow account with a Scheduled Commercial Bank,
not later than seven working days from the date of obtaining the shareholders’ approval, and
deposit therein an amount equivalent to twenty five percent of the total consideration,
calculated on the basis of the number of equity shares outstanding with the public shareholders
multiplied with the floor price or the indicative price, if any given by the acquirer in terms of
these regulations, whichever is higher.

Before making the detailed public announcement, the acquirer shall deposit in the escrow
account, the remaining consideration amount being seventy five percent calculated on the basis
of the number of equity shares outstanding with the public shareholders multiplied with the
floor price or the indicative price, if any given by the acquirer in terms of these regulations,
whichever is higher.

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On determination of the discovered price and making of the public announcement accepting
the discovered price, the acquirer shall forthwith deposit in the escrow account such additional
sum as may be sufficient to make up the entire sum due and payable as consideration in
respect of equity shares outstanding with the public shareholders.

In case of failure of the delisting offer, ninety nine percent of the amount lying in the escrow
account shall be released to the acquirer within one working day from the date of public
announcement of such failure. The remaining one percent amount lying in the escrow account
shall be released post return of the shares to the public shareholders or confirmation of
revocation of lien marked on their shares by the Manager to the offer as per the timelines
provided in these regulations.

Detailed public announcement (Regulation 15)

The acquirer shall, within one working day from the date of receipt of in-principle approval for
delisting of equity shares from the recognised stock exchange, make a detailed public
announcement in at least one English national newspaper with wide circulation, one Hindi
national newspaper with wide circulation in their all India editions and one vernacular newspaper
of the region where the relevant recognised stock exchange is located.

The detailed public announcement shall also specify a date, being a day not later than one
working day from the date of the detailed public announcement, which shall be the ‘specified
date’ for determining the names of the shareholders to whom the letter of offer shall be sent.

Letter of offer (Regulation 16)

The acquirer shall dispatch the letter of offer to the public shareholders not later than two
working days from the date of the detailed public announcement made. The letter of offer
shall be sent to all public shareholders, holding equity shares of the class sought to be delisted,
whose names appear on the register of the company or depository as on the date specified in
the detailed public announcement.

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Bidding mechanism (Regulation 17)

The bidding period shall start not later than seven working days from the date of the detailed
public announcement and shall remain open for five working days. The acquirer shall facilitate
tendering of shares by the shareholders and settlement of the same, through the stock
exchange mechanism as specified by the SEBI.

The Manager to the offer shall ensure that the outcome of the reverse book building process
is announced within two hours of the closure of the bidding period. Within two working days
from the closure of the bidding period, the acquirer shall, through the Manager to the offer,
make a public announcement in the same newspapers in which the detailed public
announcement was made, disclosing the success or failure of the reverse book building process,
along with the discovered price accepted by the acquirer in the event of success of the said
process.

Manner of tendering shares (Regulation 18)

The equity shares shall be tendered/offered by the public shareholders, including by way of
marking a lien through the stock exchange mechanism, in the manner specified by the SEBI.

Right of shareholders to participate in the reverse book building process (Regulation 19)
Public shareholders holding the equity shares of the company, which are sought to be delisted,
shall be entitled to participate in the reverse book building process in the manner specified
in Schedule II of these regulations.

Any holder of depository receipts issued on the basis of underlying equity shares and a custodian
keeping custody of such equity shares shall not be entitled to participate in the reverse book
building process.

However, any holder of depository receipts may participate in the reverse book building process
after converting such depository receipts into equity shares of the company that are proposed
to be delisted.

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Discovered price (Regulation 20)

The floor price shall be determined in terms of regulation 8 of Takeover Regulations as may
be applicable.

After fixation of the floor price, the discovered price shall be determined through the reverse
book building process in the manner specified in Schedule II of these regulations, and the
Manager to the offer shall disclose the same in the detailed public announcement and the
letter of offer.

The acquirer shall have the option to provide an indicative price in respect of the delisting
offer, which shall be higher than the floor price. The acquirer shall also have the option to
revise the indicative price upwards before the start of the bidding period and the same shall
be duly disclosed to the shareholders.

The acquirer may, if it deems fit, pay a price higher than the discovered price.

Minimum number of equity shares to be acquired (Regulation 21)

An offer made or a counter offer made by the acquirer, as the case may be, shall be deemed
to be successful if the post offer promoter shareholding (along with the persons acting in
concert with the promoter) taken together with the shares accepted through eligible bids at
the final price determined, reaches 90% of the total issued shares of that class excluding the
following:
(i) shares which are held by a custodian and against which depository receipts have been issued
overseas; and
(ii) shares held by a Trust set up for implementing an Employee Benefit Scheme under the
Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014;
(iii) shares held by inactive shareholders such as vanishing companies and struck off companies,
shares transferred to the Investor Education and Protection Fund’s account and shares held
in terms of regulation 39 (4) read with Schedule VI of the SEBI (LODR) Regulations 2015.

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However, such shareholders shall be certified by the Peer Review Company Secretary appointed
by the Board of Directors of the company for due-diligence.

Explanation— The cut-off date for determination of inactive shareholders shall be the date on
which the in-principle approval of the Stock Exchange is received, which shall be adequately
disclosed in the public announcement.

Option to accept or reject the discovered price or counter offer (Regulation 22)
The acquirer shall be bound to accept the equity shares tendered or offered in the delisting
offer, if the discovered price determined through the reverse book building process is equal to
the floor price or the indicative price, if any, offered by the acquirer.

The acquirer shall be bound to accept the equity shares, at the indicative price, if any offered
by the acquirer, even if the price determined through the reverse book building process is higher
than the floor price but less than the indicative price.

However, the abovementioned provisions shall not apply if the discovered price is higher than
the indicative price.

In case the discovered price is not acceptable to the acquirer, a counter offer may be made by
the acquirer to the public shareholders within two working days of the closure of bidding period
and thereafter, the acquirer shall ensure compliance with the provisions of these regulations in
accordance with the timelines provided in Schedule IV.

Failure of offer (Regulation 23)

The delisting offer shall be considered to have failed
- if the minimum number of shares are not tendered/offered.
- if the price discovered through the reverse book building process is rejected by the acquirer.

1) Where the delisting offer fails, the equity shares tendered / offered as the case may be, shall
be released on the date of disclosure of the outcome of the reverse book building process if

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the minimum number of shares are not tendered / offered. On the date of making public
announcement for the failure of the delisting offer if the price discovered through the reverse
book building process is rejected by the acquirer; in accordance with Schedule IV of these
regulations if a counter offer has been made by the acquirer.

However, the acquirer shall not be required to return the shares if the offer is made pursuant
to regulation 5A of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
2011.

2) Where the delisting offer fails-

The expenses relating to the offer for delisting shall be borne by the acquirer. The acquirer,
whose delisting offer has failed, shall not make another delisting offer until the expiry of six
months

Payment upon success of the offer (Regulation 24)

All the public shareholders, whose bids are accepted, shall be paid the discovered price or a
higher price, if any, offered by the acquirer, as stated in the public announcement in the
following manner -
(i) In case the discovered price is equal to the floor price or the indicative price or in case the
acquirer is bound to accept the equity shares in the delisting offer, the payment shall be made
through the secondary market settlement mechanism;
(ii) In case the discovered price or the price, if any, offered by the acquirer, is higher than the
floor price or the indicative price, as the case may be, the payment shall be made within five
working days from the date of the public announcement.

The acquirer shall be liable to pay interest at the rate of ten percent per annum to all the
shareholders, whose bids have been accepted in the delisting offer, if the price payable is not
paid to all the shareholders within the time specified thereunder.

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However, in case the delay was not attributable to any act or omission of the acquirer or was
caused due to the circumstances beyond the control of the acquirer, the SEBI may grant waiver
from the payment of such interest.

Final application to the stock exchange after successful delisting (Regulation 25)
Within 5 working days from the date of making the payment to the public shareholders, the
acquirer shall make the final application for delisting to the relevant recognised stock exchange
in the Form specified by such stock exchange from time to time.

The final application for delisting shall be accompanied with necessary details / information,
as the recognised stock exchange may require, of having provided the exit opportunity.

The final application for delisting shall be disposed of by the recognised stock exchange within
15 working days from the date of receipt of such application that is complete in all respects.
Upon disposal of the final application for delisting by the stock exchange, the equity shares of
the company shall be permanently delisted from the stock exchange.

Right of the remaining public shareholders to tender equity shares (Regulation 26)
The remaining public shareholders, whose shares were either not accepted or were not tendered
at all during the bidding period, shall have a right to tender their equity shares for a minimum
period of 1 year from the date of delisting.

The acquirer shall be under an obligation during such period to accept the shares of the
remaining public shareholders, at the same price at which the equity shares had been delisted.

The payment of consideration for equity shares accepted shall be made out of the balance
amount lying in the escrow account.

The Manager to the offer shall ensure that the amount lying in the escrow account or the
bank guarantee shall not be released to the acquirer for a minimum period of one year or till
the time payment has been made to the remaining public shareholders, whichever is earlier.

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Cancellation of outstanding depository receipts (Regulation 31)

After delisting of equity shares from all the recognized stock exchanges having nationwide
trading terminals, the company shall be required to compulsorily cancel all the outstanding
depository receipts issued overseas and change them into the underlying equity shares in the
home jurisdiction after termination of the depository receipts program(s), within 1 year of such
delisting.

OBLIGATIONS OF THE COMPANY (REGULATION 28)

- Upon receipt of the detailed public announcement, the Board of Directors of the company shall
constitute a Committee of independent directors to provide reasoned recommendations on the
delisting offer.

- The Committee of independent directors shall provide its written reasoned recommendations
on the proposal for delisting of equity shares to the Board of Directors of the company and in
relation thereto, the Committee may also seek external professional advice at the expense of
the company.

- The Committee of independent directors, while providing reasoned recommendations on the

delisting proposal, shall disclose the voting pattern of the meeting in which the said proposal
was discussed.

- The company shall publish such recommendations of the Committee of independent directors,
along with the details of the voting pattern, at least 2 working days before the commencement
of the bidding period, in the same newspapers in which the detailed public announcement of
the offer for delisting of equity shares was published, and simultaneously, a copy of the same
shall be sent to the stock exchange(s) and the Manager to the offer.

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OBLIGATIONS OF THE ACQUIRER (REGULATION 30)

- Prior to making the initial public announcement of the offer for the delisting of equity shares,
the acquirer shall ensure that firm financial arrangements have been made for fulfilling the
payment obligations under the delisting offer and that the acquirer is able to implement the
delisting offer, subject to any statutory approvals for the delisting offer that may be necessary.

- The acquirer shall ensure that the contents of the initial public announcement, the detailed
public announcement, the letter of offer and announcement about success or failure of the
offer for delisting are true, fair and adequate in all material aspects, not misleading and based
on reliable sources that shall be mentioned wherever necessary.

- The acquirer and the persons acting in concert with it shall be jointly and severally responsible
for the fulfilment of the applicable obligations under these regulations.

- The acquirer shall ensure to acquire the shares offered by the remaining public shareholders at
the same price at which the equity shares had been delisted for a minimum period of one year.

- No acquirer or persons acting in concert with it shall sell shares of the company during the
delisting period.

COMPULSORY DELISTING

Compulsory delisting refers to permanent removal of securities of a listed company from a

stock exchange as a penalizing measure by the stock exchange for not making
submissions/comply with various requirements in the Listing agreement within the time frames
prescribed.

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CONSTITUTION OF A PANEL

The decision regarding compulsory delisting shall be taken by a panel to be constituted by the
recognized stock exchange consisting of -
a. Two directors of the recognized stock exchange (one of whom shall be a public representative);
b. One representative of the investors;
c. One representative of the Ministry of Corporate Affairs or Registrar of Companies;
d. The Executive Director or Secretary of the recognized stock exchange.

PROCEDURE FOR COMPULSORY DELISTING

- Constitution of Panel by Recognised stock exchange to take decision regarding

the compulsory delisting by the exchange.
- Public notice of compulsory delisting by recognized stock exchange in one English and one
regional language newspaper of the region where the concerned recognized stock exchange is
located.
- Within 15 days, representation by the any person who may be aggrieved by the proposed
delisting.
- Delisting order by the recognized stock exchange.
- Public notice after delisting order by recognized stock exchange in one English and regional
language newspaper of the region where the concerned recognized stock exchanges is located
and information to all the stock exchanges where the shares of the company listed and also
on its trading systems and website.
- Appointment of independent Valuer
- Determination of the fair value of shares by the independent valuers appointed by the
recognized stock exchange.
- Acquisition of shares by the promoters at determined fair value.
- Company Promoters/PAC/ Directors can neither access securities market nor
seek listing for a period of 10 years.

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YouTube - YES Academy for CS and Law In Karma, I Believe.. Chapter 15 – Delisting

DELISTING OF SMALL COMPANIES

Equity shares of a company may be delisted from all the recognised stock exchanges
where they are listed, if:
(i) If a company has paid - up capital not exceeding Rs.10 crores and Net Worth not exceeding
25 Crores as on the last date of preceding year and
(ii) the number of equity shares of the company traded on each such recognised stock exchange
during the twelve calendar months immediately preceding the date of board meeting
is less than ten per cent of the total number of shares of such company.
(iii) the company has not been suspended by any of the recognised stock exchanges having
nationwide trading terminals for any non-compliance in the preceding one year
(iv) at least ninety per cent. of such public shareholders give their positive consent in
writing to the proposal for delisting, and have consented either to sell their equity
shares at the price offered by the promoter or to remain holders of the equity shares
even if they are delisted.
(v) the promoter writes individually to all public shareholders in the company informing
them of his intention to get the equity shares delisted, indicating the exit price
together with then justification therefore and seeking their consent for the
proposal for delisting.
(vi) the promoter completes the process of inviting the positive consent and finalization of the
proposal for delisting of equity shares within seventy five working days of the first
communication.
(vii) the promoter makes payment of consideration in cash within fifteen working days from the
date of expiry of seventy five working days.

DELISTING OF EQUITY SHARES OF COMPANIES LISTED ON INNOVATORS GROWTH

PLATFORM AFTER MAKING AN INITIAL PUBLIC OFFER (REGULATION 36)

A company whose equity shares are listed and traded on the innovators growth platform
pursuant to an initial public offer may be delisted from the innovators growth platform, if –
(a) such delisting is approved by the Board of Directors of the company;

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(b) such delisting is approved by the shareholders of the company by a special resolution passed
through postal ballot or e-voting. However, the special resolution shall be acted upon only if
the votes cast by the majority of public shareholders are in favour of such exit proposal;
(c) delisting price is based on a floor price determined in terms of regulation 8 of Takeover
Regulations, as may be applicable, and an additional delisting premium justified by the acquirer;
(d) the post offer shareholding of the acquirer along with the persons acting in concert with it,
taken together with the shares tendered reaches seventy five per cent of the total issued
shares of that class and at least fifty per cent shares of the public shareholders as on date
of the board meeting are tendered and accepted; and
(e) the recognised stock exchange, on which its shares are listed, approves of such delisting.

DELISTING IN CASE OF WINDING UP OF A COMPANY AND DE-RECOGNITION OF A STOCK

EXCHANGE
In case of winding up proceedings of a company whose equity shares are listed on a recognised
stock exchange, the rights, if any, of the shareholders of such company shall be in accordance
with the laws applicable to those proceedings. Where the SEBI withdraws recognition granted
to a stock exchange or refuses renewal of recognition to it, the SEBI may, in the interest of
investors pass appropriate order in respect of the status of equity shares of the companies
listed on that stock exchange.

Question:
The equity Shares of XYZ limited have been delisted from the stock exchange. When can
an application be made for listing of equity sahres of XYZ limited?

Answer:
No application for listing shall be made in respect of equity shares of a company which have
been delisted under Chapter III (Voluntary Delisting) or under Chapter VI (Exit Opportunity in
case delisting of equity shares of a company from all the recognised stock exchanges), for a
period of 3 years from the delisting and which have been delisted under Chapter V (Compulsory
Delisting), for a period of 10 years from the delisting, except the following:

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(a) whose equity shares have been delisted pursuant to a resolution plan under section 31 of the
Insolvency Code;
(b) whose equity shares are listed and traded on the innovators growth platform pursuant to an
initial public offer and which is delisted from the said platform;
(c) whose equity shares have been delisted in terms of regulation 35 (Delisting of equity shares
of small companies).

NON APPLICABILITY OF REGULATIONS

These regulation shall not be applicable to :-

- securities listed without making a public issue, on the institutional trading platform of a
recognised stock exchange;
- under a scheme sanctioned by the Board for Industrial and Financial Reconstruction under the
Sick Industrial Companies (Special Provisions) Act, 1985 or by the National Company Law
Tribunal under section 262 of the Companies Act, 2013;
- to any delisting of equity shares of a listed entity made pursuant to a resolution plan approved
under Insolvency and Bankruptcy Code, 2016.
Provided that, exit to the shareholders should be at a price which shall not be less than the
liquidation value as determined under Insolvency and Bankruptcy Board of India (Insolvency
Resolution Process for Corporate Persons) Regulations, 2016 after paying off dues in the order
of priority.

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YouTube - YES Academy for CS and Law In Karma, I Believe.. Chapter 16 – Buy Back

CHAPTER 16 - BUY BACK OF SECURITIES

MEANING

Buy back of securities means the company buys its own shares and extinguishes the same
before the name of the company is entered in its register of members.

OBJECTIVES OF BUY BACK

- to improve earnings per share;

- to improve return on capital;
- to provide an additional exit route to shareholders when shares are under-valued or are thinly
traded;
- to enhance consolidation of stake in the company;
- to prevent unwelcome takeover bids;
- to return surplus cash to shareholders;
- to support share price during periods of sluggish market conditions; and
- to service the equity more efficient.

SOURCES OF BUY BACK

A company may purchase its own securities out of:
i) its free reserves; or
ii) the securities premium account; or
iii) the proceeds of any shares or other specified securities.

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AUTHORITY

1. Buy back of securities shall be primarily authorised by the articles of association of the
company.
2. Buy-back can be made with the approval of the Board of directors at a board meeting and/or
by a special resolution passed by shareholders in a general meeting, depending on the quantum
of buy back.
3. In case of a listed company, approval of shareholders shall be obtained only by postal ballot.

QUANTUM OF BUY BACK

Board of directors can approve buy-back up to 10% of the total paid-up equity capital and free
reserves of the company.

The maximum limit of any buy-back, i.e. 25% or less of the aggregate of the paid-up capital
and free reserves of the company, will be now based on the standalone or consolidated financial
statements of the company, whichever sets out a lower amount.

In respect of the number of equity shares bought back in any financial year, the maximum
limit shall be 25% and be construed with respect to the total paid-up equity share capital of
the company in that financial year by a special resolution.

For the purposes of these regulations, the term “shares” shall include equity shares having
superior voting rights.

Further, the buyback from the open market through stock exchanges, based on the standalone
or consolidated financial statements of the company, whichever sets out a lower amount, shall
be less than:
 15% of the paid up capital and free reserves of the company till March 31, 2023;
 10% of the paid up capital and free reserves of the company till March 31, 2024;
 5% of the paid up capital and free reserves of the company till March 31, 2025.

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Buy-back from the open market through the stock exchange shall not be allowed with effect
from April 1, 2025.

Illustration: Extract of Balance Sheet of X Ltd consist of:

Equity Share Capital - Rs. 6,00,000 of Rs. 10 each
12% Preference Share Capital - Rs. 100,000 of Rs. 100 each 14% Debenture Capital - Rs.
300,000 of Rs. 100
What is the maximum equity share capital and number of equity shares that can be bought
back?
Solution:
(i) Maximum equity share capital that can be bought back
= Rs. 600000*25%
= Rs. 1,50,000

(ii) Maximum number of equity shares that can be bought back

=Rs. 1,50,000/10
= 15000 equity shares

CONDITIONS FOR BUY BACK

1. The ratio of the aggregate of secured and unsecured debts owed by the company to the paid-
up capital and free reserves after buy-back shall,-
a) be less than or equal to 2:1, based on the standalone or consolidated financial statements of
the company, whichever sets out a lower amount of the company. However if a higher ratio of
the debt to capital and free reserves for the company has been notified under the Companies
Act, 2013, the same shall prevail; or
b) be less than or equal to 2:1, based on the standalone or consolidated financial statements of
the company, whichever sets out a lower amount of the company, after excluding financial
statements of all subsidiaries that are non-banking financial companies and housing finance
companies regulated by Reserve Bank of India or National Housing Bank. However buy-back of
securities shall be permitted only if all such excluded subsidiaries have their ratio of aggregate

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of secured and unsecured debts to the paid-up capital and free reserves of not more than 6:1
on standalone basis.
2. Securities bought back shall only be fully paid securities.
3. A declaration of solvency signed by at least two directors of the company, one of whom shall
be the managing director, if any, in Form No. SH.9 and verified by an affidavit to the effect
that the Board of Directors of the company has made a full inquiry into the affairs of the
company as a result of which they have formed an opinion that it is capable of meeting its
liabilities and will not be rendered insolvent within a period of one year from the date of
declaration adopted by the Board.

FILING OF LETTER OF OFFER

1. The company which has been authorized by a special resolution shall, before the buy-back of
shares, file with the Registrar of Companies a letter of offer in Form No SH 8, along with the
fee as prescribed.
2. Such letter of offer shall be dated and signed on behalf of the Board of directors of the
company by not less than two directors of the company, one of whom shall be the managing
director, where there is one.

DISPATCH OF LETTER OF OFFER

The letter of offer shall be dispatched to the shareholders or security holders immediately after
filing the same with the Registrar of Companies but not later than 21 days from its filing with
the Registrar of Companies.

TIME PERIOD FOR BUY BACK OFFER

1. The offer for buy-back shall remain open for a period of minimum period of 15 days and for a
maximum period of 30 days from the date of dispatch of the letter of offer.
2. Buy back shall be completed within a period of one year from the date of its approval the
shareholders or board of directors of the company, as the case may be.

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3. Where all members of a company agree, the offer for buy-back may remain open for a period
less than fifteen days.

METHODS OF BUY BACK

a) from the existing shareholders or security holders on a proportionate basis;

b) from the open market;

EXTINGUISHMENT OF SECURITIES BOUGHT BACK

Securities bought back shall be extinguished within a period of 7 days from the date of
completion of buy back.

PROHIBITION ON FURTHER ISSUE OF SECURITIES

Once the securities are bought back, it shall not issue securities of the same kind within 6
months except by way of bonus issue.

REGISTER OF BUY BACK

When a company buys back its securities, it shall maintain a register of securities, the
consideration paid for the shares or securities bought back, the date of cancellation of shares
or securities, the date of extinguishing and physically destroying the shares or securities and
such other particulars as may be prescribed. It shall be maintained in Form SH 10.

RETURN OF BUY BACK

A company shall, file with the Registrar and SEBI, a return of buy-back within thirty days of
such completion in Form No. SH.11, a certificate in Form No SH.15 signed by two directors of
the company including the managing director.

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ADDITIONAL CONDITIONS FOR BUYBACK OF SHARES OR OTHER SECURITIES

A company shall not buy-back its shares or other specified securities :

a) so as to delist its shares or other specified securities from the stock exchange.
b) from any person through negotiated deals, whether on or off the stock exchange or through
spot transactions or through any private arrangement.
c) A company shall not allow buy-back of its shares unless the consequent reduction of its share
capital is affected.

FEW WORDS TO REMEMBER

Buyback Period:
The period between :
 the date of board of directors resolution; or
 date of declaration of results of the postal ballot for special resolution,
 to authorize buyback of shares of the company and the date on which the payment of
consideration to shareholders who have accepted the buyback offer is made.

Small Shareholder:
A shareholder of a company, who holds shares or other specified securities whose market value,
on the basis of closing price of shares or other specified securities, on the recognised stock
exchange in which highest trading volume in respect of such securities, as on record date is
not more than two lakh rupee.

Tender offer:
An offer by a company to buy-back its own shares or other specified securities through a letter
of offer from the holders of the shares or other specified securities of the company.

Frequently traded shares:

Frequently traded shares shall have the same meaning as assigned to them under the SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

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Secretarial auditor:
Secretarial auditor means an auditor as defined in the Secretarial Standards – I issued by the
Institute of Company Secretaries of India.

PROCEDURE FOR BUY BACK UNDER DIFFERENT METHODS

BUY BACK FROM EXISTING SECURITY HOLDERS THROUGH TENDER OFFER

1. A company making a buy-back offer shall announce a record date for determining the
entitlement and the names of the security holders, who are eligible to participate in the
proposed buy-back offer.
2. The company shall, simultaneously with the public announcement, file a copy of the public
announcement in electronic mode, with SEBI and the stock exchanges on which its shares or
other specified securities are listed. Prior to this amendment, the requirement was to file a
copy of the public announcement through a merchant banker. [Regulation 7(ii)]
3. The stock exchanges shall forthwith disseminate the public announcement to the public.
[Insertion: Regulation 7(iii)]
4. A copy of the public announcement shall be placed on the respective websites of the stock
exchange(s), merchant banker and the company. [Insertion: Regulation 7(iv)]
5. A company is required to file within 2 working days from the record date, a letter of offer
with SEBI, containing disclosures as specified in Schedule III, through a merchant banker who
is not an associate of the company and a certificate in the form specified by SEBI, issued by
the merchant banker, who is not an associate of the company, certifying that the buy-back
offer is in compliance of these regulations and that the letter of offer contains the information
required under these regulations. [Regulation 8(i)(a) and 8(i)(aa)]
6. In case of buy-back through tender offer, no draft letter of offer is required to be filed with
the Board. [Insertion: Explanation to Regulation 8(i)]
7. The public announcement shall disclose that the dispatch of the letter of offer, shall be through
electronic mode in accordance with the provisions of the Companies Act, within two working
days from the record date and that in the case of receipt of a request from any shareholder

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to receive a copy of the letter of offer in physical form, the same shall be provided. [Insertion:
Explanation to Regulation 9(ii)]
8. The date of the opening of the offer shall be not later than 4 working days from the record
date. Prior to this amendment, the requirement was 5 working days from the date of dispatch
of the letter of offer. [Regulation 9(v)]
9. The offer for buy-back shall remain open for a period of 5 working days as prior to this
amendment the requirement was 10 working days. [Regulation 9(vi)]
10. The company shall complete the verification of offers received and make payment of
consideration to those holder of securities whose offer has been accepted and return the
remaining shares or other specified securities to the securities holders within five working days
(earlier seven days) of the closure of the offer. [Regulation 10(ii)]
11. The company shall extinguish and physically destroy the securities certificates so bought back
in the presence of a registrar to an issue or the Merchant Banker and the secretarial auditor
within fifteen days of the date of acceptance of the shares or other specified securities.
[Regulation 11(i)]
12. The company shall, furnish a certificate to SEBI certifying compliance of extinguishment of
certificate duly certified and verified by the secretarial auditor of the company, the registrar
and whenever there is no registrar, by the merchant banker and two directors of the company,
one of whom shall be a managing director, where there is one. [Regulation 11(iii)]

It may be noted that fifteen per cent of the number of securities which the company proposes
to buy-back or number of securities entitled as per their shareholding, whichever is higher,
shall be reserved for small shareholders.

ESCROW ACCOUNT

The company should on or before the opening of the offer, deposit in an escrow account the
sum as follows:
(i) if the consideration payable does not exceed Rs 100 crores - 25 per cent of the consideration
payable;

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(ii) if the consideration payable exceeds Rs 100 crores - 25 per cent upto Rs 100 crores and 10
percent thereafter;
The escrow account referred to above shall consist of:
(a) cash deposited with a scheduled commercial bank, or
(b) bank guarantee in favour of the merchant banker, or
(c) deposit of frequently traded and freely transferable equity shares or other freely transferable
securities with appropriate margin with the merchant banker, or
(d) government securities or
(e) units of mutual funds invested in gilt funds and overnight schemes or
(f) a combination of the above;

POINTS TO BE REMEMBERED
- The shares proposed to be bought back shall be divided into two categories;
a) Reserved category for small shareholders; and
b) General category for other shareholders, and the entitlement of a shareholder in each category
shall be calculated accordingly.
- Holdings of multiple demat accounts would be clubbed together for identification of small
shareholder, if sequence of Permanent Account Number for all holders is matching. Similarly,
in case of physical shareholders, if the sequence of names of joint holders is matching, holding
under such folios should be clubbed together for identification of small shareholder.
- After accepting the shares or other specified securities tendered on the basis of entitlement,
shares or other specified securities left to be bought back, if any in one category shall first be
accepted, in proportion to the shares or other specified securities tendered over and above their
entitlement in the offer by securities holders in that category and thereafter from securities
holders who have tendered over and above their entitlement in other category.

CAN UNREGISTERED SHAREHOLDER TENDER HIS SHARES FOR BUYBACK?

Yes, unregistered shareholder may also tender his shares for buy-back by submitting the duly
executed Transfer deed for transfer of shares in his name, along with the offer form and
other relevant documents as required for transfer, if any. Please note that shareholders holding

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shares in physical form will not be eligible to tender shares under the offer, unless the shares
held by them are dematerialised.

BUY BACK FROM OPEN MARKET

Buy-back of shares from the open market may be in any one of the following methods:
(i) Through stock exchange.
(ii) Book-building process.

1. The company shall ensure that at least 75% of the amount earmarked for buy-back is utilized
for buying-back shares or other specified securities. The minimum utilization of the amount
earmarked for buy-back through stock exchange route has been increased from existing 50%
to 75%. [Regulation 15(i)]
2. The company shall ensure that at a minimum of forty per cent of the amount earmarked for
the buy-back, as specified in the resolution of the Board of Directors or the special resolution,
as the case may be, is utilized within the initial half of the specified duration. [Insertion:
Regulation 15(ii)]

BUY BACK THROUGH STOCK EXCHANGE

- The special resolution/ board resolution, should specify the maximum price at which the buy-
back will be made;
- Buy back shall only be made on stock exchanges having nationwide terminals. For the purpose
of buy-back through stock exchange, a separate window will be created by the concerned stock
exchange and such window shall remain open for the period specified in these regulations.
- The buy-back of securities should not be from the promoters or persons in control of the
company;
- The buy-back should be made only on stock exchanges having Nationwide Trading Terminal
facility and only through the order matching mechanism except ‘all or none’ order matching
system.

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- The company should appoint a merchant banker and make a public announcement within 2
working days from the date of passing special resolution;
- The company shall, simultaneously with the public announcement made, file a copy of the
public announcement in electronic mode with SEBI and the stock exchanges on which its
shares or other specified securities are listed.
- The stock exchanges shall forthwith disseminate the public announcement to the public.
- A copy of the public announcement shall be placed on the respective websites of the stock
exchange(s), merchant banker and the company.
- The company shall submit the information regarding the shares bought back, to the stock
exchange on a daily basis and the stock exchange shall upload the same on its official website
immediately;
- The company shall upload the information regarding the shares or other specified securities
bought back on its website on a daily basis.
- In case of buy back from open market, no draft letter of offer or offer letter is required to be
filed with SEBI.
- The buy-back through stock exchanges shall be undertaken only in respect of frequently traded
shares.
- The buy-back through stock exchanges shall be subject to the restrictions on placement of
bids, price and volume as specified by SEBI.
- The identity of the company as a purchaser would appear on the electronic screen when the
order is placed.

The buy-back offer shall open not later than four working days from the record date and shall
close-
 within 6 months, if the buy-back offer is opened on or before March 31, 2023;
 within 66 working days, if the buy-back offer is opened on or after April 1, 2023 and till
March 31, 2024; and
 within 22 working days, if the buy-back offer is opened on or after April 1, 2024 and till
March 31, 2025.

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However, with effect from April 1, 2025, the option of open market buy-back through the
stock exchange shall not be available to any company except in cases where the buyback
offer has opened on or before Mach 31, 2025. [Regulation 17(ii)]

BUY BACK THROUGH BOOK BUILDING

1. A company may buy-back its shares or other specified securities from its existing securities
holders through the book building process. [Regulation 22]
2. Disclosures, filing requirements and timelines for public announcement:
i. The company, which has been authorised by a special resolution or a resolution passed by its
Board of Directors, shall appoint a merchant banker and make a public announcement within
two working days from the date of the approval of Board of Directors or of the shareholders.
ii. The disclosures in the public announcement shall be made in accordance with Schedule II.
iii. The book building process shall commence within seven working days from the date of the
public announcement.
iv. The public announcement shall contain the detailed methodology pertaining to intimation
required to be made prior to the opening of the buy-back offer as specified in Schedule - VI.
3. The special resolution should specify the maximum price at which the buy-back will be made.
4. The deposit in the escrow account should be made before the date of the public announcement.
5. The amount to be deposited in the escrow account should be determined with reference to the
maximum price as specified in the public announcement.
6. The book-building process should be made through an electronically linked transparent facility.
7. The number of bidding centres should not be less than thirty and there should be at least one
electronically linked computer terminal at all the bidding centres.
8. The offer for buy-back should be kept open to the security-holders for a period of not less
than two days.
9. The merchant banker and the company should determine the buy-back price based on the
acceptances received and the final buy-back price, which should be the highest price accepted
should be paid to all holders whose securities have been accepted for the buy-back.
10. Payment of consideration shall be completed within a period of five working days from the
date of closure of buy back.

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11. Provisions pertaining to extinguishment of securities for tender offer shall apply in the same
way to buy back though book building as well.

OBLIGATIONS OF THE COMPANY

The company shall ensure that,—

a) the letter of offer, the public announcement of the offer or any other advertisement, circular,
brochure, publicity material shall contain true, factual and material information and
shall not contain any misleading information and must state that the directors of the
company accept the responsibility for the information contained in such documents;
b) the company shall not issue any shares or other specified securities including by way of bonus
till the date of expiry of buyback period for the offer made under these regulations;
c) the company shall pay the consideration only by way of cash;
d) the company shall not withdraw the offer to buy-back after the draft letter of offer is
filed with SEBI or public announcement of the offer to buy-back is made;
e) the promoter(s) or his/their associates shall not deal in the shares or other specified securities
of the company in the stock exchange or off-market, including inter- se transfer of shares
among the promoters during the period from the date of passing the resolution of the board
of directors or the special resolution, as the case may be, till the closing of the offer.
f) the company shall not raise further capital for a period of one year from the expiry of
buyback period, except in discharge of its subsisting obligations.
g) No public announcement of buy-back shall be made during the pendency of any scheme of
amalgamation or compromise or arrangement pursuant to the provisions of the Companies Act,
2013.
h) The company shall nominate a compliance officer and investors service centre for
compliance with the buy-back regulations and to redress the grievances of the investors.
i) The particulars of the security certificates extinguished and destroyed shall be
furnished by the company to the stock exchanges where the shares or other
specified securities of the company are listed within seven days of extinguishment and
destruction of the certificates.

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j) The company shall not buy-back the locked-in shares or other specified securities and non-
transferable shares or other specified securities till the pendency of the lock-in or till the
shares or other specified securities become transferable.
k) The company shall within two days of expiry of buy-back period issue a public advertisement
in a national daily, disclose details regarding desucirites bought back, amount paid and change
in capital structure:
l) The company in addition to these regulations shall comply with the provisions of buy-back as
contained in the Companies Act and other applicable laws.

OBLIGATIONS OF THE MERCHANT BANKER

The merchant banker shall ensure that—

- the company is able to implement the offer;
- the provision relating to escrow account has been complied with;
- firm arrangements for monies for payment to fulfill the obligations under the offer are
in place;
- the public announcement of buy-back is made in terms of the regulations;
- the letter of offer has been filed in terms of the regulations;
- a due diligence certificate along with the draft letter of offer has been furnished to SEBI;
- the contents of the public announcement of offer as well as the letter of offer are true, fair
and adequate and quoting the source wherever necessary;
- due compliance of sections 68, 69 and 70 of the Companies Act and any other laws or rules
as may be applicable in this regard has been made;
- the bank with whom the escrow or special amount has been deposited releases the balance
amount to the company only upon fulfilment of all obligations by the company under the
regulations;
- a final report is submitted to SEBI in the form specified within fifteen days from the date of
expiry of buyback period

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BUYBACK VIS-A-VIS COMPLIANCE UNDER SEBI (SAST) REGULATIONS, 2011

In case the acquirer’s initial shareholding was more than 25% and the increase in shareholding
due to buyback is beyond the permissible creeping acquisition limit of 5% per financial year,
the acquirer can get an exemption from making an open offer, subject to the following:
- Such acquirer does not vote in favour of the resolution authorising the buy-back of securities
under section 68 of the Companies Act, 2013;
- In the case of a shareholders resolution, voting is by way of a postal ballot;
- The increase in voting rights does not result in an acquisition of control by such an acquirer
over the target company.

In case the above conditions are not fulfilled, the acquirer may, within 90 days from the date
of increase, dilute his stake so that his voting rights fall below the threshold which requires
an open offer.

POWER OF SEBI TO RELAX STRICT ENFORCEMENT OF THE REGULATIONS

SEBI may, in the interest of investors and the securities market, relax the strict enforcement
of any requirement of these regulations except the provisions incorporated from the Companies
Act, if the SEBI is satisfied that:
(a) the requirement is procedural in nature; or
(b) the requirement may cause undue hardship to investors;

For seeking relaxation as above, the company shall file an application with the SEBI, supported
by a duly sworn affidavit, giving details and the grounds on which such relaxation has been
sought. The company shall along with the application, pay a non-refundable fee of rupees fifty
thousand.

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CHAPTER 17 - MUTUAL FUNDS

CONCEPT, DEFINITION AND MEANING OF MUTUAL FUND

A mutual fund works on a very simple concept. It raises money from a lot of small investors,
creates a pool of such funds and then invests the same money in various financial assets. Over
a period of time, any returns generated out of such investments are distributed amongst the
investors. As a token of security, the investors are issued unit certificates. The investors have
the choice to either transfer, retain or redeem these units depending upon the time of fund.

In other words, Mutual Fund means a fund established in the form of a trust to raise money
through sale of units to the public under one or more schemes for investing in securities,
including money market instruments.

The small investors who generally lack expertise to invest on their own in the securities market
prefer some kind of collective investment vehicle like mutual fund, which pool their marginal
resources, invest in securities, and distribute the returns there from among them on cooperative
principles. The investor benefits in terms of reduced risk and higher returns arising from
professional expertise of fund manager employed by the Mutual Fund.

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Initially only UTI was allowed to do the Mutual Fund business. Thereafter, in the year 1987,
public sector banks and insurance companies were also allowed to do this business. Finally, in
the year 1993 the mutual fund industry was opened to the private sector as well as foreign
institutions.

Every mutual fund is required to have an Asset Management Company, a company incorporated
in the Companies Act, 2013, to manage the funds of the mutual fund. The Asset Management
Company should be approved by SEBI and should enter into an agreement with the trustees
of the mutual funds to formulate schemes, raise money against the issue of units, etc.

Trustees of a mutual fund mean the Board of Trustees or the Trustee Company who holds the
property of the mutual fund trust for the benefit of the unit holders.

Mutual fund is always accompanied with a sponsor. Sponsor means any person who, acting
alone or in combination with another body corporate, establishes a mutual fund.

Mutual fund is always accompanied with a Custodian of Securities. Custodian means a person
who has been granted a certificate of registration to carry on the business of custody of
securities under the SEBI (Custodian of Securities) Regulations, 1996.

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ADVANTAGES OF MUTUAL FUNDS

The advantages of investing in a mutual fund are:

1. Professional Management: Mutual funds are managed by a team of skilled professionals, who
are expert in their areas. They also have a research team, which constantly analyses the
performance and prospects of companies and selects suitable investments to achieve the
objectives of the scheme.

2. Diversification: There is a very famous proverb in english, it says: “Do not lay all your eggs
in one basket”. Mutual funds work on an exact similar concept. Mutual funds invest in a
number of companies across sectors. Even if one particular sector collapses, the losses are
covered by some other investment, which is doing well. Investors achieve this diversification
through a Mutual Fund with far less money than one can do on his own.

3. Convenient Administration: Investing in a mutual fund reduces paper work and helps investors
to avoid many problems such as bad deliveries, deliveries, delayed payments, and unnecessary
follow up with brokers and companies. Mutual funds save investors time and make investing
easy and convenient.

4. Return Potential: Over a medium to long term, mutual funds have the potential to provide a
higher return as they invest in a diversified basket of selected securities.

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5. Low Costs: Mutual funds invest huge sums of money and hence the cost of brokerage is less
as compared to a direct investment made by any investor. So the overall brokerage, custodial
and other fees translate into lower costs for investors.

6. Liquidity: Liquidity means readiness to convert investments into cash. In open-ended schemes,
investors can get their money back promptly at net asset value related prices from the mutual
fund itself. With close-ended schemes, investors can sell their units on a stock exchange at
the prevailing market price or avail of the facility of direct repurchase at net asset value (NAV)
related prices.

7. Transparency: As per SEBI Regulations, all the mutual funds are compulsorily required to
disclose the details of the investments made by them from time to time to all its investors.

BASIC CLASSIFICATION OF MUTUAL FUNDS

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All the mutual funds can be broadly classified into

- open ended mutual funds
- close ended mutual funds
As the name suggests, an open-ended mutual fund is a fund wherein, the fund itself buys
and sells units from/to the investors. Since the fund itself buys and sells units, its units are
non-fixed. The fund itself buys back the units surrendered and is ready to sell new units.
Generally, the transaction takes place at the net asset value, which is calculated on a periodical
basis.

A close ended mutual fund is the fund where mutual fund management sells a limited number
of units and does not redeem them ie once the units are issued, they are redeemed only at
the time of end of its tenure. In between, the investors have the choice to sell the units in
the open market. Primary example of such mutual fund is UTI’s Master share. The units of
such mutual funds are traded in the secondary market.
Following are the important differences between close ended and open ended mutual funds :

S.No. Close ended schemes Open ended schemes

1. Fixed corpus : no new units can be Variable corpus due to ongoing purchase and
offered beyond the limit redemption
2. Listed on stock exchange for buying No listing on exchange, transactions done
and selling directly with the fund

3. Two values available namely NAV and Only one price namely NAV
the Market Trading Price

4. Mostly liquid Highly liquid

5. Can be purchased only during NFO Can be purchased on any transaction day

6. Can be redeemed only at maturity Can be redeemed on any transaction day

[Except when units are locked-in in the case
of Equity-Linked Savings Scheme (ELSS)
funds]

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MUTUAL FUND PLANS

Sr No. Regular Plans Direct Plans

1 Sold through a distributor Sold directly by the AMC

2 Higher Expense Ratio due to Lower Expense Ratio as no commission is

commissions paid to distributor paid to distributor

3 Potentially lower returns to the investor Potentially higher returns due to lower
due to higher expenses expenses

TYPES OF MUTUAL FUNDS

Following are the important types of mutual funds:

Income oriented mutual funds: the fund primarily offers fixed income to investors. Naturally,
the main securities in which investments are made by such funds are the fixed yielding ones
like bonds.

Growth oriented mutual funds: These funds offer growth potentialities associated with
investment in capital market namely:
 High source of income by way of dividend and
 Rapid capital appreciation, both from holding of good quality scrips
These funds, with a view to satisfying the growth needs of investors, primarily concentrate on
the low risk and high yielding spectrum of equity scrips of the corporate sector.

High Growth Schemes: An investment in high risk and high return with a high degree of
capital appreciation generating securities in which aggressive investors are willing.

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Tax Saving Schemes: These schemes offer tax rebates to the investors under tax laws as
prescribed from time to time. The Government offers tax incentives for investment in specified
avenues e.g. Equity Linked Saving Schemes (ELSS) and Pensions Schemes. It may be noted
that Equity Linked Saving Schemes (ELSS) have the lock-in period of three years.

Hybrid mutual funds: These funds cater to both the investment needs of the prospective
investors – namely fixed income as well as growth orientation. Therefore, investment targets
of these mutual funds are judicious mix of both the fixed income securities like bonds and
debentures and also sound equity scrips. In fact, these funds utilize the concept of balanced
investment management. These funds are, thus also known as “balanced funds.”

Hedge Funds: There is no exact definition of the term ‘Hedge Funds’. In general, Hedge Funds
are unregistered private investment partnerships, funds or pools that may invest and trade in
many different markets, strategies and instruments. Hedge funds have an investor base
comprising wealthy individuals and institution and relatively high minimum investment limits.
They normally pay performance fees to their managers.

It may be noted that Hedge Funds are sometimes also known as Rich Man’s Mutual Funds.

Leverage Funds: Leverage Funds increase the size and value of portfolio and other benefits to
member through excess gains over cost of borrowed funds. They tend to indulge in speculative
trading and risky investment.

Money market mutual fund: These funds invest in short term debt securities in the money
market like certificates of deposits, commercial papers, government treasury bills etc. owing to
their large size, the funds normally get a higher yield on such short-term investments than an
individual investor.

Real Estate funds: These are closed ended mutual funds, which invest predominantly in real
estate and properties.

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Capital protection oriented scheme: This is a mutual fund scheme which is designed as such
and which endeavors to protect the capital invested therein through suitable orientation of its
portfolio structure.

Fund of Funds: They invest only in units of other mutual funds. Such funds do not operate at
present in India.

Special Schemes: This category includes index schemes that attempt to replicate the
performance of particular index such as the BSE, Sensex or the NSE-50 or industry specific
schemes (which invest in specific industries) or sectoral schemes (which invest exclusively in
segment such as ‘A’ Group or initial public offering). Index fund schemes are ideal for investors
who are satisfied with a return approximately equal to that of an index. Sectoral fund schemes
are ideal for investors who have already decided to invest in particular sector or segment.

Off-shore Funds: Such funds invest in securities of foreign companies with RBI permission.

New Direction Funds: They invest in companies engaged in scientific and technological research
such as birth control, anti-pollution, oceanography etc.

Exchange Trade Funds: ETFs are a new variety of mutual funds that first introduced in 1993.
ETFs are sometimes described as mere “tax efficient” than traditional equity mutual funds,
since in recent years, some large ETFs have made smaller distribution of realized and taxable
capital gains than most mutual funds.

Infrastructure Debt Fund: They invest primarily in the debt securities or securitized debt
investment of infrastructure companies.

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FIVE PRINCIPAL CONSTITUENTS

1. Sponsor
A sponsor is an influential investor who creates demand for a security because of their positive
outlook on it. The sponsor brings in capital and creates a mutual fund trust and sets up the
AMC. The sponsor makes an application for registration of the mutual fund and contributes at
least 40% of the net worth of the AMC.

2. Asset Management Company

An asset management company (AMC) is a company that invests its clients’ pooled funds
into securities that match declared financial objectives. Asset management companies provide
investors with more diversification and investing options than they would have themselves.
AMCs manage mutual funds, hedge funds and pension plans, these companies earn income by
charging service fees or commissions to their clients.

3. Trustee
A trustee is a person or firm that holds and administers property or assets for the benefit of
a third party. A trustee may be appointed for a wide variety of purposes, such as in case of
bankruptcy, for a charity, for a trust fund or for certain types of retirement plans or pensions.

No person shall be eligible to be appointed as a trustee unless—

1. he is a person of ability, integrity and standing; and
2. has not been found guilty of moral turpitude; and
3. has not been convicted of any economic offence or violation of any securities laws; and has
furnished particulars as specified.

No asset management company and no director (including independent director), officer or

employee of an asset management company shall be eligible to be appointed as a trustee of
any mutual fund.

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No person who is appointed as a trustee of a mutual fund shall be eligible to be appointed as

a trustee of any other mutual fund

Two-thirds of the trustees shall be independent persons and shall not be associated with the
sponsors or be associated with them in any manner whatsoever.

In case a company is appointed as a trustee then its directors can act as trustees of any other
trust provided that the object of the trust is not in conflict with the object of the mutual
fund.

4. Unit Holders
A unitholder is an investor who owns the units issued by a trust, like a real estate investment
trust or a master limited partnership (MLP). The securities issued by trusts/MF are called
units, and investors in units are called unitholders. The unit in turn reflect share of the investor
in the Net Assets of the fund.

5. Mutual fund
A mutual fund established under the Indian Trust Act to raise money through, the sale of
units to the public for investing in the capital market. The funds thus collected as per the
directions of asset management company for invested. The mutual fund has to be SEBI
registered.

MARKET INTERMEDIARIES

Custodian
A custodian is a person who carries on the business of providing custodial services to the client.
The custodian keeps the custody of the securities of the client. The custodian also provides
incidental services such as maintaining the accounts of securities of the client, collecting the
benefits or rights accruing to the client in respect of securities.

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Transfer Agents
A transfer agent is a person who has been granted a Certificate of Registration to conduct the
business of transfer agent under SEBI Regulations. Transfer agents’ services include issue and
redemption of mutual fund units, preparation of transfer documents and maintenance of
updated investment records. They also record transfer of units between investors where
depository does not function. They also facilitate investors to get customized reports.

Depository
A depositor facilitates the smooth flow of trading and ensure the investor`s about their
investment in securities.

RISKS INVOLVED IN MUTUAL FUNDS

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Mutual funds may face the following risks, leading to non-satisfactory performance :
1) Excessive diversification of portfolio, losing focus on the securities of the key segments
2) Too much concentration on blue chip securities which are high priced and which do not offer
more than average return
3) Necessity to effect high turnover through liquidation of portfolio resulting in large payments of
brokerage and commission
4) Poor planning of investment with minimum returns
5) Unresearched forecast on income, profits and Government policies
6) Fund managers being unaccountable for poor results
7) Failure to identify clearly the risk of the scheme as distinct from risk of the market.

TYPES OF RISKS & CAUSE OF RISK

Volatility risk
Typically, equity-based funds invest in the shares of companies that are listed on stock
exchanges. The value of such funds is based on companies’ performance, which often gets
affected due to the prevalent microeconomic factors.

Credit risk
Credit risk in mutual fund investment often results from a situation, wherein, the issuer of the
scheme fails to pay the promised interest. In case of debt funds, typically, fund managers
include investment-grade securities with high credit ratings.

Liquidity risk
Mutual funds with a long-term and rigid lock-in period like ELSS often come with liquidity
risk. Such a risk signifies that investors often find it challenging to redeem their investments
without incurring a loss.

Concentrated risk
This mutual fund risk is also prevalent among investors. It can be described as the situation
when investors tend to put all their money into a single investment scheme or in one sector.

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For instance, investing entirely in just one company’s stocks often bears a substantial risk of
losing capital if caught amidst bad market situations.

Inflation risk
It can be best described as the risk of losing one’s purchasing power, mainly due to the rising
inflation rate. Typically, investors are exposed to the impact of this risk when the rate of
returns earned on investments fails to keep up with the increasing inflationary rate.

OFFER DOCUMENT OF MUTUAL FUND SCHEME

Offer Document

Parts

SAI SI
Statement of Additional Scheme
D
Information Information
Document
 Information relating to particular
Statutory
scheme
information on
 Updation: 3 months
mutual fund
 from end of the FY if scheme
formed in 1st half of year.
 From end of next FY, it
scheme formed in 2nd half of
a year

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MUTUAL FUND TERMINOLOGY

Offer Document
- AMC raises money in new schemes through New Fund Offer (NFO)
- Offer document contains key details about the NFO - open and close dates, scheme objective,
nature of the scheme, etc.
- Filed with SEBI
Two parts:

Scheme Information Document (SID) - A document that contains the details of the scheme.
SID has to be updated every year
Key Contents:
- Scheme name on the cover page, along with scheme structure (open / closed-ended) and
expected scheme nature (equity / debt / balanced / liquid / ETF)
- Highlights of the scheme
- Risk factors
- Due diligence certificate issued by the AMC
- Fees and expenses
- Rights of unit holders
- Penalties, litigations, etc.

Statement of Additional Information - A document that contains statutory information about

the fund house offering the scheme. SAI has to be updated the end of every quarter

Key Contents:
- Information about sponsor, mutual fund, trustees, custodian and registrar & transfer agents
- Condensed financial information for schemes launched in the last three financial years
- Information on how to apply
- Rights of unit holders
- Details of the fund managers
- Tax, legal and other general information

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Net Asset Value

Net asset value is the value of the assets of each unit of the scheme. Thus if the NAV is
more than the face value of Rs. 10/-, there is an appreciation for the investment. If the NAV
is less than the face value, it indicates depreciation of the investment. Every mutual fund shall
compute the NAV of each scheme and publish the same at least in two daily newspapers on
every working day.

How is it calculated:
NAV = Net Asset of the Scheme / number of outstanding units
Net Asset of the Scheme = Market value of investments + Receivables+ other accrued income+
other assets -Accrued Expenses- Other Payables- Other Liabilities

FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA)

- Requires that all financial institutions (including Indian mutual funds) need to report. financial
transactions of US persons and entities in which US persons hold a substantial ownership.
- Enacted to prevent tax evasion through foreign investments.
- Key details required: Country of birth, Country of citizenship, country of tax residence, TIN
from such country.
- Currently made mandatory for all investors (existing and new) in Indian mutual funds.
- For non-individual investors, Ultimate Beneficial Ownership (UBO) details have to be provided.

Modes of Holding
- Single
- Either or Survivor
Signature of any of the applicants is sufficient for making transactions
- Joint
Signature of all the applicants is required for making transactions

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Nomination
- Up to 3 nominees can be registered for a folio
- Units get transferred to the nominees (in the proportion specified) in case of the investor’s
demise
- Nomination can be updated as and when required by the investor
– A minor can also be nominated, provided the guardian is specified
- If nomination is not registered, in case of death of the investor, the legal heir has to produce
documents such as Will, Legal Heir Certificate, No-Objection Certificate from other legal heirs,
etc.

EXPENSE RATIO

- The fees charged by the scheme to manage investors’ money. It includes:

- Fees paid to service providers like trustees, Registrar & Transfer Agents, Custodian, Auditor,
etc.
- Asset management expenses
- Commissions paid to distributors
- Other selling expenses including advertising expenses
- Expenses on investor communication, account statements, dividend / redemption cheques /
warrants
- Listing fees and Depository fees
- GST

Under SEBI (Mutual Funds) Regulations, 1996, Mutual Funds are permitted to incur / charge
certain operating expenses for managing a mutual fund scheme - such as sales & marketing /
advertising expenses, administrative expenses, transaction costs, investment management fees,
registrar fees, custodian fees, audit fees - as a percentage of the fund’s daily net assets. This
is commonly referred to as ‘Expense Ratio’.

In short, Expense ratio is the cost of running and managing a mutual fund which is charged
to the scheme.

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For actively managed equity schemes, the total expense ratio (TER) allowed under the
regulations is 2.5 % for the first ₹100 crore of average weekly net assets; 2.25 % for the
next ₹300 crore, 2 % for the subsequent ₹300 crore and 1.75 % for the balance AUM.

For debt schemes, the expense ratio permitted is 0.25 % lower than that allowed for equity
funds. Information on expense ratio applicable to a MF scheme is mentioned in the Scheme
Information Document. For example, an expense ratio of 1% per annum means that each year
1% of a scheme’s total assets will be used to cover the expenses managing and operating a
scheme.

The expense ratio is calculated as a percentage of the Scheme’s average Net Asset Value
(NAV). The daily NAV of a mutual fund is disclosed after deducting the expenses. Thus, the
TER has a direct bearing on a scheme’s NAV - the lower the expense ratio of a scheme, the
higher the NAV.

However, while expense ratio is important, it should be borne in mind that it is not the only
criterion while selecting mutual fund scheme. A scheme with a consistently decent track record,
but a higher expense ratio may be better than the one which lower expense ratio, but gives
poor returns.

HOLDING PERIOD RETURN

Holding period return is the total return received from holding an asset or portfolio of assets
over a period of time, generally expressed as a percentage.

Holding period return is calculated on the basis of total returns from the asset or portfolio -
i.e. income plus changes in value. It is particularly useful for comparing returns between
investments held for different periods of time

HPR = (Income + (end of period value- original value) x 100

Original Value

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Sales Charges/ Loads: These costs are directly charged to the investors. Mutual funds use the
sales loads for payments of agents’ commission and expenses for distribution and marketing.
Sales charges or loads are of two types:
i) Front end Load (Entry Load) : Front end Load is a onetime fixed fee, which is paid by an
investor while he buys into scheme/buys the units of a scheme of a mutual fund. Front end
Load can be calculated in the following manner:
Purchase Price = Net Asset Value
1 – Front End Load

ii) Back end Load (Exit Load) : This is a fixed fee payable by an investor at the time of
redemption. Back end Load can be calculated in the following manner:
Redemption price = Net Asset Value
1 + Back End Load

EFFICIENCY OF A MUTUAL FUND

The efficiency of mutual funds may be judged on the factors such as –

 Stability of funds;
 Liquidity of funds (listed on exchanges);
 Increase in NAV, consistent growth in dividend and capital appreciation;
 Whether the investment objectives are clearly laid and implemented;
 Whether the issuer has a proven track record and offers assured return not less than a
percentage;
 Whether it observes investment norms to balance risks and profits.

ASSET MANAGEMENT COMPANY (AMC)

Under SEBI Regulations, every mutual fund is required to have an Asset Management Company
(AMC) incorporated as per Companies Act, 2013 to manage the funds of the mutual fund.
The AMC should be approved by SEBI and should enter into an agreement with the trustees
of the mutual fund to formulate schemes, raise money against units, invest the funds and

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after meeting the permissible costs as per norms, distribute income to the shareholders of the
funds.

Eligibility Criteria
In order to obtain a certificate of registration, the applicant must meet the following conditions
as follows:
a) The sponsor should have a sound track record and general reputation of fairness and integrity
in all his business transactions.
The regulations provide that “Sound track record” means the sponsor:-
i) Is carrying on business in financial services for a period of not less than five years; and
ii) The networth is positive in all the immediately preceding five years; and
iii) The networth in the immediately preceding year is more than the capital contribution of the
sponsor in the asset management company; and
iv) The sponsor has profits after providing for depreciation, interest and tax in three out of the
immediately preceding five years, including the fifth year;
a) the applicant is a fit and proper person.
b) In the case of an existing mutual fund, such fund is in the form of a trust and the trust deed
has been approved by SEBI;
c) The sponsor has contributed or contributes at least 40% to the networth of the asset
management company;
d) The sponsor or any of its directors or the principal officer to be employed by the mutual fund
should not have been guilty of fraud or has not been convicted of an offence involving moral
turpitude or has not been found guilty of any economic offence;
e) Appointment of trustees to act as trustees for the mutual fund in accordance with the
provisions of the regulations;
f) Appointment of asset management company to manage the mutual fund and operate the
scheme of such funds in accordance with the provisions of these regulations;
g) Appointment of custodian in order to keep custody of the securities or gold and gold related
instrument or other assets of the mutual fund held in terms of these regulations, and provide
such other custodial services as may be authorized by the trustees.

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h) the board of directors of such asset management company has at least fifty per cent directors,
who are not associate of, or associated in any manner with, the sponsor or any of its subsidiaries
or the trustees;
i) the Chairman of the asset management company is not a trustee of any mutual fund;
j) the asset management company has a networth of not less than rupees fifty crore;

Where the sponsor does not fulfil the requirements provided in regulation 7 at the time of
making application, the asset management company shall be required to have a net worth of
not less than rupees one hundred crore and the asset management company shall maintain
such net worth till it has profits for five consecutive years. However, an asset management
company of a mutual fund eligible to launch only infrastructure debt fund schemes, shall have
a net worth of not less than rupees ten crore.

Regulations now require that the networth of the asset management company shall be
maintained on a continuous basis.

AUDIT COMMITTEE OF ASSET MANAGEMENT COMPANIES (AMCS)

SEBI has prescribed that the AMCs of mutual funds shall be required to constitute an Audit
Committee.

Role
The Audit Committee shall be responsible for oversight of financial reporting process, audit
process, company’s system of internal controls, compliance to laws and regulations and other
related process, with specific reference to operation of its Mutual Fund business.

Membership
(1) The Audit Committee of AMC shall have minimum 3 directors as members.
(2) At least two-third members of the Audit Committee shall be independent directors of AMC.
If two-third of the total strength results into fraction, then higher number after rounding up
shall be considered.
(3) The members of the Audit Committee will be appointed by the Board of Directors of AMC.

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(4) All members of Audit Committee shall be persons with ability to read and understand the
financial statement and at least one member shall have experience and background in finance
and accounts.
(5) The Chairperson of the Committee shall be an independent director, with adequate experience
in the areas of finance and financial services.

Meetings
The Chairperson of the Audit Committee shall call the meeting as and when required. However,
atleast four meetings shall be called in a financial year and not more than one hundred and
twenty days shall elapse between two meetings.

Quorum
The quorum for meeting shall either be two members or one third of the members of the Audit
Committee, whichever is greater, with at least two independent directors.

NORMS FOR SHAREHOLDING & GOVERNANCE IN MUTUAL FUNDS

(1) No sponsor of a mutual fund, its associate or group company including the asset management
company of the fund, through the schemes of the mutual fund or otherwise, individually or
collectively, directly or indirectly, have –
(a) 10% or more of the share-holding or voting rights in the asset management company or the
trustee company of any other mutual fund; or
(b) Representation on the board of the asset management company or the trustee company of
any other mutual fund.
(2) Any shareholder holding 10% or more of the share-holding or voting rights in the asset
management company or the trustee company of a mutual fund, shall not have, directly or
indirectly, -
(a) 10% or more of the share-holding or voting rights in the asset management company or the
trustee company of any other mutual fund; or
(b) representation on the board of the asset management company or the trustee company of any
other mutual fund.

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APPOINTMENT OF CUSTODIAN
- The mutual fund shall appoint a Custodian to carry out the custodial services for the schemes
of the fund and sent intimation of the same to the Board within fifteen days of the
appointment of the Custodian.
- However in case of a gold exchange traded fund scheme, the assets of the scheme being gold
or gold related instruments may be kept in the custody of a custodian registered with the
SEBI.

AGREEMENT WITH CUSTODIAN

- In case of a real estate mutual fund scheme, the title deed of real estate assets held by it
may be kept in the custody of a custodian registered with the SEBI.
- The mutual fund shall enter into a custodian agreement with the custodian, which shall contain
the clauses which are necessary for the efficient and orderly conduct of the affairs of the
custodian.
- However the agreement, the service contract, terms and appointment of the custodian shall be
entered into with the prior approval of the trustees.

PROCEDURE FOR LAUNCHING OF SCHEMES

- No scheme shall be launched by the asset management company unless such scheme is
approved by the trustees and a copy of the offer document has been filed with the SEBI.
- The offer documents shall contain adequate disclosures to enable the investors to make
informed decisions.
- The mutual fund shall pay the minimum filing fee to the SEBI while filing the offer document
and the balance filing fee within such time as may be specified by the SEBI.
- The sponsor or asset management company shall invest not less than one percent of the
amount which would be raised in the new fund offer or fifty lakh rupees, whichever is less,
and such investment shall not be redeemed unless the scheme is wound up. However the
investment by the sponsor or asset management company shall be made in such option of
the scheme, as may be specified by the SEBI. The mutual fund, which intends to list units
of its scheme on the recognised stock exchange(s), shall obtain ‘in-principle’ approval from

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recognised stock exchange(s) in the manner as specified by the recognised stock exchange(s)
from time to time.
- Every mutual fund desirous of listing units of its schemes on a recognised stock exchange
shall execute an agreement with such stock exchange.
- The listing of close-ended schemes is mandatory and these should be listed on a recognised
stock exchange within such time period and subject to such conditions as specified by the
SEBI.
- Units of a close-ended scheme can be opened for sale or redemption at a predetermined fixed
interval if the minimum and maximum amount of sale, redemption and periodicity is disclosed
in the offer document.
- Units of a close-ended scheme can be converted into an open-ended scheme if the offer
document of such scheme discloses the option and the period of such conversion or the
unitholders are provided with an option to redeem their units in full.
- Units of close-ended scheme may be rolled over in the case of those unitholders who express
their consent in writing and the unitholders who do not opt for the roll over or have not given
written consent shall be allowed to redeem their holdings in full at net asset value based
price.
- No scheme other than equity-linked saving scheme can be opened for subscription for more
than 15 days. Further, the minimum subscription and the extent of over subscription that is
intended to be retained should be specified in the offer document. In the case of over-
subscription, all applicants applying up to 5,000 units must be given full allotment subject to
over subscription.
- The AMC is required to refund the application money if minimum subscription is not received,
and also the excess over subscription within five working days of closure of subscription.
- A close-ended scheme shall be wound up on redemption date, unless it is rolled over, or if
75% of the unitholders of a scheme pass a resolution for winding up of the scheme; if the
trustees on the happening of any event require the scheme to be wound up; or if SEBI, so
directs in the interest of investors.

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CODE OF CONDUCT OF MUTUAL FUNDS

(i) The schemes should not be organized, operated and managed in the interest of sponsors or
the directors of AMC or special class of unit holders;
(ii) It shall ensure the adequate dissemination of adequate, fair, accurate and timely information
of all the stakeholders;
(iii) The excessive concentration of business with the broking firm should be avoided;
(iv) The scheme - wise segregation of bank accounts and securities accounts must be ensured;
(v) The investment should be made in accordance with the investment strategies stated on the
offer documents;
(vi) The high standards of integrity and fairness in all the dealings should be maintained by the
trustees and AMCs;
(vii) The AMCs shall not make any exaggerated statements;
(viii) A half yearly report on the activity of the mutual funds shall be submitted to SEBI by the
trustees.

ADVERTISEMENT OF CONDUCT OF MUTUAL FUNDS

(i) Advertisement shall be accurate, true, fair, clear, complete, unambiguous and concise.
(ii) Advertisement shall not contain statement which are false, misleading, biased or deceptive,
based on assumptions and shall not contain any testimonials or any ranking based on any
criteria.
(iii) No celebrities shall form part of advertisement.
(iv) No advertisement shall directly or indirectly discredit other advertisements or make unfair
comparisons.
(v) Advertisements shall be accompanied by a standard warning in legible fonts which states
“Mutual fund investments are subject to market risks, read all schemes related document
carefully.” No addition or deletion of words shall be made to the standard warning.
(vi) In audio visual media based advertisements, the standard warning in visual and accompanying
voice over reiteration shall be audible in a clear and understandable manner. For example, in

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standard warning both the visual and the voice over reiteration containing 14 words running
for at least 5 seconds may be considered as clear and understandable.
(vii) Advertisement shall not be so designed as likely to be misunderstood or likely to be disguise
the significance of any statement.

MUTUAL FUNDS ARE PERMITTED TO MAKE INVESTMENT IN

(i) ADRs and GDRs;

(ii) Equity of overseas company;
(iii) Initial or follow on public investments;
(iv) Foreign debt securities;
(v) Money market instruments;
(vi) Repos in the form of investment;
(vii) Government securities;
(viii) Derivative;
(ix) Short - term deposits;
(x) Units issued by overseas mutual funds.

PRICING OF UNITS OF MUTUAL FUND

(1) The price at which the units may be subscribed or sold and the price at which such units
may at any time be repurchased by the mutual fund shall be made available to the investors
in the manner specified by the Board.
(2) The mutual fund shall provide the methodology of calculating the sale and repurchase price of
units in the manner specified by the Board.
(3) While determining the prices of the units, the mutual fund shall ensure that the repurchase
price is not lower than 95 per cent of the Net Asset Value and the sale price is not higher
than 107 per cent of the Net Asset Value.

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SYSTEMATIC INVESTMENT PLAN (SIP) IN MUTUAL FUND

An SIP allows an investor to invest a fixed amount regularly in a mutual fund scheme, typically
an equity mutual fund scheme. An SIP helps investor to stagger the investments in equity
mutual fund schemes over a period. Most mutual fund advisors do not recommend investing a
lumpsum in equity mutual funds.

SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015

The provisions of SEBI (LODR) Regulations, 2015 applies to the asset management company
managing the mutual fund scheme whose units are listed on the recognised stock exchange(s).

The listed entity shall intimate to the recognised stock exchange(s) of:
(a) movement in unit capital of those schemes whose units are listed on the recognised stock
exchange(s);
(b) rating of the scheme whose units are listed on the recognised stock exchange(s) and any
changes in the rating thereof (wherever applicable);
(c) imposition of penalties and material litigations against the listed entity and Mutual Fund; and
(d) any prohibitory orders restraining the listed entity from transferring units registered in the
name of the unit holders.

NET ASSET VALUE (NAV) – CUT-OFF TIMELINE

Type of Transaction Before/ Cut-off Time Applicable NAV

After
Equity-oriented & Debt funds (except liquid funds)
Purchase & Switch- 3 pm Before Same day NAV
in (value < Rs.2 After Next business day NAV
lakhs)

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Purchase & Switch- 3 pm Before NAV of the business day on

in (value > Rs.2 After which funds are available for
lakhs) utilization
Redemption & 3 pm Before Same day NAV
Switch-out After Next business day NAV
Liquid Funds

Purchase & Switch- 2 pm Before Previous day NAV if funds

in are realized
After NAV of the day previous to
the funds realized
Redemption & 3 pm Before NAV of the day immediately
Switch-out preceding the next business
day
After NAV of the day preceding
the second business day
from submission

Type of Scheme Transaction type Cut-off

timings
Liquid Funds & Subscription (including 1:30 p.m.
Overnight Funds Switch-in from other
schemes)
Redemption (including 3:00 p.m.
Switch-in from other
schemes)
All other schemes Subscription (including 3:00 p.m.
(other than Liquid Funds / Switch-in from other
Overnight Funds) schemes)

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Redemption (including 3:00 p.m.

Switch-in from other
schemes)

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CHAPTER 18 - COLLECTIVE INVESTMENT SCHEMES

INTRODUCTION

A Collective Investment Schemes (CIS) is an extension of Mutual Fund wherein an

investment is done in installments. In Collective Investment Schemes investors do not have
day to day control over the management and operation of the scheme.

A CIS comprises a pool of assets that is managed by a Collective Investment Schemes

manager as is governed by SEBI (Collective Investment Schemes) Regulations, 1999.
Collective Investment Schemes provides a relatively secure means of investing on the SE.

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SEBI (COLLECTIVE INVESTMENT SCHEMES) REGULATIONS, 1999

An Overview :
SEBI (Collective Investment Schemes) Regulations, 1999 defines Collective Investment
Management Company to mean a company incorporated under the Companies Act, 2013 and
registered with SEBI under these regulations, whose object is to organize, operate and
manage a collective investment.

No person other than a Collective Investment Management Company which has obtained a
certificate under the regulations should carry on or sponsor or launch a collective investment
scheme.

“Close ended collective investment scheme” means any collective investment scheme
launched by a collective investment management company in which the maturity period of
the collective investment scheme is specified and these is no provision for repurchase before
the expiry of the collective investment scheme.

“Collective investment scheme property” includes:

(i) subscription of money or money’s worth (including bank deposits) to the collective
investment scheme;
(ii) property acquired, directly or indirectly, with, or with the proceeds of, subscription of money
retired to in item (i); or
(iii) income arising, directly or indirectly from, subscription money or property retired to in item
(i) or (ii).

REGISTRATION OF CIMC
No person other than a Collective Investment Management Company which has obtained a
certificate under these regulations shall carry on or sponsor or launch a collective investment
scheme.

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APPLICATION FOR GRANT OF CERTIFICATE

Any person proposing to carry any activity as a Collective Investment Management Company
shall make an application to the SEBI for the grant of registration as specified.

APPLICATION BY A SCHEME OR ARRANGEMENT DEEMED TO BE A COLLECTIVE

INVESTMENT SCHEME
(1) Any person proposing to carry on or sponsor or launch any scheme or arrangement which
would be deemed to be a collective investment scheme, shall make an application for grant
of registration as a Collective Investment Management Company.
(2) All other provisions of these regulations and the guidelines and circulars issued there under,
shall apply to any scheme or arrangement deemed to be a collective investment scheme.

APPLICATION BY EXISTING COLLECTIVE INVESTMENT SCHEMES

- Any person who immediately prior to the commencement of these regulations was operating
a collective investment scheme, shall subject to the provisions as specified under these
regulations make an application to the SEBI for the grant of a certificate within a period of
two months from such date.
- The application made shall be dealt with in any of the following manner:
(a) by grant of provisional registration by SEBI;
(b) by grant of a certificate of registration by the SEBI;
(c) by rejection of the application for registration.
- An existing collective investment scheme which:
(a) has failed to make an application for registration to the SEBI; or
(b) has not been granted provisional registration by the SEBI; or
(c) having obtained provisional registration fails to comply with the conditions of SEBI;
shall wind up the existing collective investment scheme.

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PROCEDURE WHERE REGISTRATION IS NOT GRANTED

Where an application made for grant of registration does not satisfy the conditions specified,
the SEBI may reject the application after giving the applicant a reasonable opportunity of
being heard and inform the applicant of the same. The decision shall be communicated to
the applicant by the SEBI within 30 days of such decision stating therein the grounds on
which the application has been rejected.

RESTRICTIONS ON BUSINESS ACTIVITIES

Collective Investment Management Company cannot undertake :

Any activity other Act as a trustee of Launch any scheme Invest in any
than managing the any scheme for the purpose of scheme floated by it.
scheme. investing in
securities

OBLIGATIONS OF CIMC
Every Collective Investment Management Company should:
(i) be responsible for managing the funds or properties of the scheme on behalf of the unit
holders.
(ii) exercise due diligence and care in managing assets and funds of the scheme.
(iii) remain liable to the unit holders for its acts of commission or omissions.
(iv) be incompetent to enter into any transaction with or through its associates, or their relatives
relating to the scheme.
(v) appoint registrar and share transfer agents and should also abide by their respective Code of
Conducts.
(vi) give receipts for all monies received and report of the receipts and payments to SEBI, on
monthly basis.
(vii) hold a meeting of Board of Directors to consider the affairs of scheme, at least twice in
every three months and also ensures that its officers or employees do not make improper use
of their position or information.
(viii) obtain adequate insurance against the properties of the schemes.

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(ix) The Collective Investment Management Company and its designated employees shall invest
such amounts in such schemes of the Collective Investment Management Company, as may
be specified by the Board from time to time.

SUBMISSION OF INFORMATION AND DOCUMENTS

1. The Collective Investment Management Company should prepare quarterly reports of its
activities and the status of compliance of SEBI regulations and submit the same to the
trustees within one month of the expiry of each quarter.
2. The Collective Investment Management Company should file with the trustees and the SEBI,
particulars of all its directors along with their interest in other companies within fifteen days
of their appointment.
3. It should furnish a copy of the Balance Sheet, Profit and Loss Account; a copy of the
summary of the yearly appraisal report and such other information as may be required, to the
unit holders, SEBI and trustees within two months from the closure of financial year.

ELIGIBILITY FOR APPOINTMENT AS TRUSTEE

The persons registered with the SEBI as Debenture Trustee under SEBI (Debenture Trustee)
Regulations, 1993 are only eligible to be appointed as trustees.

No person is eligible to be appointed as trustee, if he is directly or indirectly associated with

the persons who have control over the CIMC.

No person should be appointed as trustee of a scheme, if he has been found guilty of an

offence under the securities laws or the SEBI or any authority to which the SEBI has
delegated its power has passed against such person, an order under the Act for violation of
any provision of the Act or of regulations made hereunder.

The trustee and the Collective Investment Management Company should enter into an
agreement for managing the schemes’ property.

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APPOINTMENT OF TRUSTEE NOT FOUND GUILTY

No person should be appointed as trustee of a collective investment scheme, if he has been
found guilty of an offence under the securities laws or the SEBI or any authority to which
the SEBI has delegated its power has passed against such person, an order under the Act for
violation of any provision of the Act or of regulations.

LAUNCH OF SCHEMES BY COLLECTIVE INVESTMENT MANAGEMENT COMPANY

Close ended collective investment scheme and collective investment scheme duration
Collective Investment Management Company shall:
(a) launch only close ended collective investment schemes;
(b) the duration of the collective investment schemes shall not be of less than three calendar
years.

NO GUARANTEED RETURNS
No collective investment scheme shall provide guaranteed or assured returns. However
indicative return may be indicated in the offer document only, if the same is assessed by
the appraising agency and expressed in monetary terms.

ADVERTISEMENT MATERIAL
Advertisements in respect of every collective investment scheme shall be in conformity with
the Advertisement Code as specified in the Seventh Schedule. The advertisement for each
collective investment scheme shall disclose in addition to the investment objectives, the
method and periodicity of valuation of collective investment scheme property.

APPRAISING AGENCY
The appraising agency whose appraisal report forms part of the offer document and has given
a written consent for the inclusion of the appraisal report in the offer document shall be
liable for any statement in the appraisal report which is misleading, incorrect or false.

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MISLEADING STATEMENTS
The offer document and advertisement materials shall not be misleading or contain any
statement or opinion which are incorrect or false. Where an offer document or advertisement
includes any statement or opinions which are incorrect or false or misleading, every person—
(i) who is a director of the Collective Investment Management Company at the time of the
issue of the offer document;
(ii) who has issued the offer document

Shall be punishable under the Act unless he proves either that the statement or opinion was
immaterial or that he had reasonable ground to believe at the time of the issue of the offer
document or advertisement that the statement was true.

OFFER PERIOD
No collective investment scheme shall be open for subscription for more than 15 days.
However, collective investment scheme may be kept open for subscription for a maximum of
another 15 days subject to issuance of public notice by the Collective Investment
Management Company before the expiry of initial 15 days.

KEY ASPECTS FOR LAUNCHING COLLECTIVE INVESTMENT SCHEME

1. The company floating CIS shall have to seek registration with SEBI as Collective Investment
Management Company (CIMC).
2. CIS shall be constituted as a two tiered structure comprising of a trust and a CIMC.
3. At the time of application for Registration as CIMC, these entities should have a minimum
networth of Rs. 3 crores which shall have to be increased to Rs. 5 crores within three years
from the date of grant of registration.
4. Compulsory Filing of Offer Documents: Every collective investment Scheme shall have to
file offer documents with SEBI containing adequate disclosures to enable the investors to
take informed investment decisions.
5. Mandatory Rating Requirement: Each collective investment scheme shall have to obtain a
rating from recognised credit rating agencies such as CRISIL Limited, Fitch Ratings India
Private Limited, ICRA Limited, CARE, SMERA.

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6. The projects being undertaken must also be appraised by an empanelled appraising agency
such as Agricultural Finance Corporation Ltd., North Eastern Development Finance
Corporation Ltd. (NEDFI), Indian Institute of Forest Management, The Forest Research
Institute (FRI).
7. No Assured Return: The collective investment schemes are prohibited from guaranteeing
assured returns. Indicative returns, if any, provided by the collective investment scheme shall
be based on the projections in the appraisal report.
8. Advertisement Code: Advertisements in respect of every collective investment scheme shall
have to conform to the SEBI’s advertisement code.
9. Subscription Period: No collective investment scheme shall be kept open for subscription for
a period of more than 15 days. The collective investment schemes shall be close ended in
nature. The collective investment schemes must indicate the minimum and maximum amount
proposed to be raised over this period.
10. Duration of collective investment Schemes: The duration of the collective investment
schemes shall be for a minimum period of 3 years.
11. Insurance: Compulsory Insurance cover for the assets of the collective investment scheme
and personal indemnity cover for the CIMC shall be obtained.
12. Listing: Units issued under the Collective Investment Schemes are to be compulsorily listed
on recognised stock exchanges.
13. Accounting/Valuation norms: Accounting/valuation norms as stipulated shall have to be
followed by Collective Investment Schemes.

RIGHTS AND OBLIGATIONS OF THE TRUSTEE

The trustee should ensure that the CIMC has;

(i) the necessary office infrastructure;
(ii) appointed all key personnel including managers for the schemes having necessary educational
qualifications and past experience;
(iii) appointed auditors from the list of auditors approved by SEBI;
(iv) appointed a compliance officer to redress investor grievances;
(v) appointed registrars to an issue and share transfer agent.

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(vi) prepared a compliance manual and designed internal control mechanisms including internal
audit systems;
(vii) taken adequate insurance for the assets of the scheme;
(viii) not given any undue or unfair advantage to any associates of the company or dealt with any
of the associates in any manner detrimental to the interest of the unit holders;
(ix) operated the scheme in accordance with the provisions of the trust deed, these regulations
and the offer document;
(x) undertaken the activity of managing schemes only;
(xi) taken adequate steps to ensure that the interest of investors of one scheme are not
compromised with the object of promoting the interest of investors of any other scheme;
(xii) minimum networth on a continuous basis and shall inform the SEBI immediately of any
shortfall
(xiii) A meeting of the trustees to discuss the affairs of the scheme should be held at least twice
in every three months.

TERMINATION OF TRUSTEESHIP

(a) If the trustee ceases to be trustee under SEBI (Debentures Trustees) Regulations, 1993; or
(b) if the trustee is in the course of being wound up; or
(c) if unit holders holding at least three-fourths of the nominal value of the unit capital of the
scheme pass a resolution for removing the trustee and SEBI approves such resolution; or
(d) if in the interest of the unit holders, SEBI, for reasons to be recorded in writing decides to
remove the trustee;
(e) if the trustee serves on the Collective Investment Management Company, a notice of not
less than three months expressing intention of not to continue as trustee.

TERMINATION OF THE AGREEMENT WITH THE COLLECTIVE INVESTMENT MANAGEMENT

COMPANY

The agreement entered into by the trustee with the Collective Investment Management
Company may be terminated -

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(a) if the CIMC is in the course of being wound up as per the provisions of the Companies Act,
2013 or;
(b) if unit holders holding at least three-fourth of the nominal value of the unit capital of the
scheme pass a resolution for terminating the agreement with the CIMC and the prior
approval of SEBI has been obtained, or
(c) if in the interest of the unit holders, SEBI or the trustee after obtaining prior approval of
SEBI, and after giving an opportunity of being heard to the Collective Investment
Management Company, decide to terminate the agreement with the CIMC.

DISCLOSURES IN THE OFFER DOCUMENT

The CIMC shall before launching any scheme file a copy of the offer document of the
scheme with the SEBI and pay filing fees as specified. The offer document should also
contain true and fair view of the scheme and adequate disclosures to enable the investors to
make informed decision. SEBI may carry out such modifications in the offer document as it
deems fit. In case no modifications are suggested by SEBI in the offer document within 21
days from the date of filing, the Collective Investment Management Company may issue the
offer document to the public.

ALLOTMENT OF UNITS AND REFUNDS OF MONEY

The CIMC should refund the application money to the applicants, if the scheme fails to
receive the minimum subscription amount. Any amount refundable should be refunded within
5 working days from the date of closure of subscription list, by Registered A.D. and by
cheque or demand draft. In the event of failure to refund the amounts within the period
specified, the CIMC has to pay interest to the applicants at a rate of fifteen percent per
annum on the expiry of 5 working days from the date of closure of the subscription list. A
scheme shall not be open for more than 15 days.

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CLOSURE OF SUBSCRIPTION LIST

Each collective investment scheme shall immediately after the closure of the subscription list
comply with the following conditions, namely,-
(a) minimum subscription amount of rupees twenty crore;
(b) minimum twenty investors; and
(c) no person shall hold more than twenty-five percent of the assets under management of
scheme.

Provided that where the collective investment scheme fails to comply with this, Collective
Investment Management Company shall be liable to refund the application money to the
applicants.

OFFER PERIOD
No collective investment scheme shall be open for subscription for more than fifteen days:
Provided that collective investment scheme may be kept open for subscription for a maximum
of another fifteen days subject to issuance of public notice by the Collective Investment
Management Company before the expiry of initial fifteen days.

UNIT CERTIFICATES
The Collective Investment Management Company should issue to the applicant whose
application has been accepted, the units only in dematerialized form within a period of five
working days from the date of closure of the subscription list.

TRANSFER OF UNITS
A unit certificate issued under the scheme should be freely transferable. The CIMC on
production of instrument of transfer together with relevant unit certificates, register the
transfer and return the unit certificate to the transferee within thirty days from the date of
such production. However, if the units are held in a depository such units shall be
transferable in accordance with the provisions of the SEBI (Depositories and Participants)
Regulations, 2018 and bye-laws of the depository.

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INVESTMENTS AND SEGREGATION OF FUNDS

The Collective Investment Management Company should:
(a) not invest the funds of the scheme for purposes other than the objective of the scheme as
disclosed in the offer document.
(b) segregate the assets of different schemes.
(c) not invest corpus of a scheme in other schemes.
(d) not transfer funds from one scheme to another scheme.
(e) not invest more than 25% of the amount raised by CIMC in projects owned directly or
indirectly by CIMC.

LISTING OF SCHEMES
The units of every scheme shall be listed immediately after the date of allotment of units
and not later than six weeks from the date of closure of the scheme on each of the stock
exchanges as mentioned in the offer document.

WINDING UP OF SCHEME
A scheme may be wound up :
(a) On the happening of any event which, in the opinion of the trustee, requires the scheme to
be wound up and the prior approval of the SEBI is obtained; or
(b) If unit holders of a scheme holding at least three-fourth of the nominal value of the unit
capital of the scheme, pass a resolution that the scheme be wound up and the approval of
SEBI is obtained thereto; or
(c) If in the opinion of SEBI, the continuance of the scheme is prejudicial to the interests of the
unit-holders; or
(d) If in the opinion of the CIMC, the purpose of the scheme cannot be accomplished and it
obtains the approval of the trustees and that of the unit holders of the scheme holding at
least three-fourth of the nominal value of the unit capital of the scheme with a resolution
that the scheme be wound up and the approval of SEBI is obtained thereto.

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WHAT SHALL NOT BE COLLECTIVE INVESTMENT SCHEME

(i) made or offered by a co-operative society registered under the Co- operative Societies Act,
1912 or a society being a society registered or deemed to be registered under any law relating
to co-operative societies for the time being in force in any State;
(ii) under which deposits are accepted by non-banking financial companies as defined in clause
(f) of section 45-I of the Reserve Bank of India Act, 1934;
(iii) being a contract of insurance to which the Insurance Act, 1938, applies;
(iv) providing for any Scheme, Pension Scheme or the Insurance Scheme framed under the
Employees Provident Fund and Miscellaneous Provisions Act, 1952;
(v) under which deposits are accepted under section 74 of the Companies Act, 2013;
(vi) under which deposits are accepted by a company declared as a Nidhi or a mutual benefit
society under section 406 of the Companies Act, 2013;
(vii) falling within the meaning of Chit business as defined in clause (d) of section 2 of the Chit
Fund Act, 1982;
(viii) under which contributions made are in the nature of subscription to a mutual fund;
(ix) such other scheme or arrangement which the Central Government may, in consultation with
SEBI, notify, shall not be a collective investment scheme.

SEBI (COLLECTIVE INVESTMENT SCHEMES) (AMENDMENT) REGULATIONS, 2022

The following amendments to the SEBI (Collective Investment Schemes) Regulations, 1999,
have been made:

Definition of “auditor” has been modified as-

“auditor” means a firm, including a limited liability partnership, constituted under the
Limited Liability Partnership Act, 2008, who is eligible and qualified to audit the accounts of
a company under section 141 of the Companies Act, 2013.

The definition of “designated employees” has been inserted:

“designated employees” of the Collective Investment Management Company includes:
(i) chief executive officer, chief investment officer, chief risk officer, chief information security
officer, chief operation officer, fund manager, compliance officer, sales head, investor relation

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officer, heads of other departments and dealer of the Collective Investment Management
Company;
(ii) persons directly reporting to the chief executive officer (excluding personal assistant/
secretary);
(iii) fund management team and research team;
(iv) other employees as identified by Collective Investment Management Companies or trustees.

GENERAL OBLIGATIONS OF COLLECTIVE INVESTMENT MANAGEMENT COMPANY

MAINTAIN PROPER BOOKS OF ACCOUNT AND RECORDS, ETC.

(1) Every Collective Investment Management Company shall-
(a) keep and maintain proper books of account, records and documents, for each collective
investment scheme so as to explain its transactions and to disclose any point of time the
financial position of each collective investment scheme and in particular give a true and fair
view of the state of affairs of the collective investment scheme, and
(b) intimate to the SEBI and the trustees the place where such books of account, records and
documents including computer records are maintained.
(2) Every Collective Investment Management Company shall continue to maintain and preserve,
for a period of five years after the close of each collective investment scheme, its books of
account, records, computer data and documents.

DISPATCH OF WARRANTS AND PROCEEDS

The Collective Investment Management Company shall-
(a) Dispatch to the unit holders the warrants within 42 days of the declaration of the interim
returns.
(b) Dispatch the redemption proceeds within 30 days of the closure or the winding up of the
collective investment scheme.

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STATEMENT OF ACCOUNTS AND ANNUAL REPORT

The Collective Investment Management Company shall:
a) The expense incurred in case of Initial Issue Expenses and Annual recurring expenses shall
not exceed 2.00 percent of the funds raised under the collective investment scheme.
However, other direct costs, if any, which are incidental to the operation of the collective
investment scheme may be charged to scheme, as may be approved by trustee;
b) prepare the accounts of the collective investment scheme in accordance with accounting
norms as specified in Part II of the Ninth Schedule;
c) comply with format of balance sheet and profit and loss accounts as specified in Part III of
the Ninth Schedule.

AUDITOR’S REPORT
Every collective investment scheme shall have the annual statement of accounts audited by
an auditor who is empanelled with the SEBI and who is not in any way associated with the
auditor of the Collective Investment Management Company. The auditor shall be appointed
by the trustee. The auditor shall forward his report to the trustee and such report shall form
part of the Annual Report.

PUBLICATION OF ANNUAL REPORT AND SUMMARY THEREOF

The collective investment scheme wise annual report or an abridged form thereof shall be
published in a national daily as soon as possible but not later than two calendar months
from the date of finalisation of accounts. The report if published in abridged form shall carry
a note that full annual report shall be available for inspection at the Head Office and all
branch offices of the Collective Investment Management Company.

QUARTERLY DISCLOSURES
A Collective Investment Management Company, on behalf of the collective investment
scheme shall before the expiry of one month from the close of each quarter publish its
unaudited financial results in one daily newspaper having nationwide circulation and in a
newspaper published in the language of the region where the Head Office of the Collective
Investment Management Company is situated.

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CHAPTER 19 - PRACTICAL PROBLEMS – PAST YEAR EXAMS

2016 – June 1(c)
Machine owns 250 preference shares of Amaze Ltd., which currently sells for Rs.77 per share
and pays annual dividend of Rs. 13 per share –
(i) What is Manish’s expected return?
(ii) If Manish requires 13% return, should he sell or buy more preference shares at the current
price? (5 marks)

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2014 – Dec. [1]

The following information has been collected regarding two shares, Share-A and Share-B,
trading at BSE on 18th September, 2017.

Share – A
Date Time Price Rs. No of shares
traded

18th September, 2017 14.45.10 385.60 550

18th September, 2017 14.55.35 382.78 1,575
18th September, 2017 15.00.20 380.99 1,514
18th September, 2017 15.01.30 381.79 1,625
18th September, 2017 15.05.40 380.38 1,025
18th September, 2017 15.10.20 381.51 1,390
18th September, 2017 15.20.25 381.42 800
18th September, 2017 15.22.20 384.07 600
18th September, 2017 15.25.55 383.74 1,200

Share - B
Date Time Price Rs. No. of shares
traded

18th September, 2017 14.07.30 50.60 250

18th September, 2017 14.11.40 52.10 585
18th September, 2017 14.16.20 49.85 700
18th September, 2017 14.26.25 51.25 425
18th September, 2017 14.45.10 50.75 450
18th September, 2017 14.55.35 49.95 500

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You are required to determine the closing prices and last traded prices for both the shares for
18th September, 2017. (8 marks)

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2016 – Dec. [1](d)

Following information has been collected regarding Share-X trading at NSE on 2nd September,
2017 :
Date Time Price Rs. No. of shares
traded

2nd September, 2017 14.42.10 265.60 550

2nd September, 2017 14.53.35 262.78 1,575

2nd September, 2017 15.00.20 260.99 1,514

2nd September, 2017 15.03.30 261.79 1,625

2nd September, 2017 15.05.40 260.38 1,025
2nd September, 2017 15.12.20 261.51 1,390
2nd September, 2017 15.21.25 261.42 800
2nd September, 2017 15.22.20 264.07 600
2nd September, 2017 15.26.55 263.74 1,200

You are required to determine the closing price and last traded price for Share-X for 2nd
September, 2017. (8 marks)

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2014 – Dec. [2] (c)

25th January, 2013, XY Bank purchased at 91 – days treasury bill maturing on 16th March, 2013.
The rate quoted by the seller is Rs. 99.25 per Rs. 100 face value. Computer the yield percentage
of the treasury bill. (4 marks)

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2016 – Dec. [1] (b)

As on 1st April, 2016, Russel Ltd. has surplus cash for six months. It has following two options
under consideration for investing the surplus cash :
(i) To invest in fixed deposit at an interest rate of 8% per annum payable quarterly; or
(ii) To buy treasury bills of the face value of Rs. 100 at Rs. 98.019 maturing after six months.
Presuming that the risk involved in both the options is identical, state with reasons as to
which option should be selected by the company for investing its surplus funds. (5 marks)

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2008 – June [6] (a)

A unit of Evergrow Equity Fund is redeemed at Rs. 15, the exit load being 2.25%. Calculate
the NAV. (4 marks)

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2008 – Dec. [5] (a)

Define ‘NAV’ and ‘offer price’. If Rahul invests Rs. 10,000 in a scheme that charges 2% front
end load at an NAV of Rs. 10 per unit, what shall be the public offer price? (4 marks)

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2010 – June [5] (c)

The redemption price of a mutual fund unit is Rs.48 while the front-end load and back-end
load charges are 2% and 3% respectively.
You are required to calculate :
(i) Net asset value per unit; and
(ii) Public offer price of the unit. (5 marks)

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2015 – June [1] (a)

Super mutual fund has launched a scheme named ‘Super Bonanza’. The net asset value [NAV]
of the scheme is Rs. 12.00 per unit. The redemption price is Rs. 11.66 per unit and offer price
is Rs. 12.50 per unit. You are required to calculate –
(i) Front – end load; and
(ii) Back-end load. (5 marks)

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2015 – June [1] (b)

Calculate value of ‘rights’ from the following information –
Number of rights shares offered 2,500
Number of shares held 1,000
Ex-rights price Rs. 18
Rights offer price Rs. 15
Face value of a share Rs. 10 (5 marks)

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2015 – Dec. [1] (b)

Somnath Ltd. has a share capital of 50,000 equity shares of Rs. 100 each. Market value is Rs.
250 per share. The company decides to make a rights issue to the existing shareholders in
proportion of one new rights share of Rs. 100 at a premium of Rs. 30 per share for every 5
shares held. Calculate the value of rights. (5 marks)

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2016 – Dec. [1] (c)

Compute NAV and rate of return for a unit holder who bought a unit at Rs. 17.60 and received
a dividend of Rs. 2 per unit during the period. Face value of the unit is Rs. 10. Other details
are as under :
Particulars Rs. in crore
Market value of funds portfolio 4,200
Size of the scheme 2,000
Accrued income 100
Receivables 100
Accrued expenses 275
Liabilities 150
Number of outstanding units : 200 crore
(5 marks)

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MODULE QUESTION
ABC mutual Fund has the following assets in scheme XYZ at the close business on 31st
March, 2019.

Company No. of Shares Market Price Per Share

N Ltd 25,000 Rs 20
D Ltd 35,000 Rs 300
S Ltd 29,000 Rs 380
C Ltd 40,000 Rs 500

The total number of units of scheme XYZ are 10 Lakh. The Scheme XYZ has accrued expenses
of Rs 2,50,000 and other Liabilities of Rs 2,00,000. Calculate the NAV per unit of the scheme
XYZ

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2017 – Dec. [1]

ABC Ltd. a company whose equity shares are listed at BSE and NSE is seeking delisting of
its equity shares from both the recognized stock exchanges. It provides an exit opportunity to
all public shareholders in accordance with SEBI [Delisting of Equity Shares] Regulations, 2009.
Calculate the minimum number of equity shares to be acquired for the delisting offer to be
successful. Also determine the final offer price from the details given hereunder: (8 marks)
(i) Shareholding
Number of Shares Percentage holding

Promoter 75,00,000 75

Public 25,00,000 25

1,00,00,000 100

(ii) The floor price in terms of SEBI [Substantial Acquisition of Shares and Takeovers] Regulations,
2011 is Rs. 550 per share.
(iii) Assume that all the public shareholders holding shares in the demat mode had participated in
the book building process as follows :
Bid Price Number of Investors Demand [Number of
Rs. Shares]
550 5 2,50,000
565 8 4,00,000
575 10 2,00,000
535 4 4,00,000
595 6 1,20,000
600 5 1,30,000
605 3 2,10,000
610 3 1,40,000
615 3 1,50,000
620 1 5,00,000
48 25,00,000

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2015 – Dec. [1] (a)

Jai Ltd. announced issue of bonus shares in the ratio of 1:3 [i.e., one share for every three
shares held]. At present the face value of share is Rs. 10, current market price is Rs 621. In
addition, it announced split of shares by reducing the face value from Rs. 10 to Rs. 2. Calculate
the share price if all other things remain constant. What would have been the situation if split
would have been done before the issue of bonus shares? (5 marks)

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2015 – Dec. [1]

Aishwarya Ltd. proposes to issue 10,00,000 share warrants to its promoters. The share warrants
give an option to buy shares at a predetermined price. From the following share price data,
identify the price at which share warrants should be issued and the amount payable by the
promoters at the time of allotment :
(i) Closing price in the market on the relevant date : Rs. 340
(ii) The average of the weekly high and low of the closing prices of the related shares quoted on
the stock exchange during the six months preceding the relevant date; Rs. 354.
(iii) The average of the weekly high and low of the closing prices of the related shares quoted on
a stock exchange during the two weeks preceding the relevant date : Rs. 350. (6 marks)

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2014 – June [1]

Attempt the following and support your answer with necessary reasons:
a) A transaction of dematerialized equity shares took place on Wednesday, the 19 th March, 2018
at BSE. According to the compulsory rolling settlement, compete the following table with
timeline of the settlement cycle :
Activity Day and Date
Rolling settlement trading
Custodial confirmation
Delivery generation
Securities and funds pay in
Securities and funds pay out
Valuation debit
Auction
Auction settlement

(5 marks)
Answer-

Activity Day Day and Date

Rolling Settlement Trading T Wednesday i.e 19th March
Custodial confirmation T+1 Working days Thursday i.e. 20th March
Delivery generation T+1 Working days Thursday i.e. 20th March
Securities and funds pay T+2 Working days Friday i.e. 21st March
in
Securities and funds pay T+2 Working days Friday i.e. 21st March
out
Valuation debit T+2 Working days Friday i.e. 21st March
Auction T+3 Working days Monday i.e. 24th March
Auction Settlement T+5 Working days Wednesday i.e. 26th March

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June 2019
A Mutual Fund having 300 units has shown Net Asset Value (NAV) of Rs 8.75 and Rs 9.45
at the beginning and at the end of the year respectively. The Mutual Fund has given two
options:
(i) Pay Rs 0.75 per unit as dividend and Rs 0.60 per unit as capital appreciation; or
(ii) These distributions are to be reinvested at an average NAV of Rs 8.65 per
unit. What difference it would make in terms of return available and which option is preferable?
(5 marks)

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June 2019:
From the following information, calculate the Enterprise Value of E Ltd. :
Balance Sheet of E Ltd. as on 31st March, 2018

Liabilities Amount Assets Amount

(`Lakh) (`Lakh)

Share Capital (Face Value of Rs 2) 952 Non-Current Assets 2,550

Reserves & Surplus 48 Current Assets :
Minority Interest 115 Cash & Cash Equivalent 102
Short-term Borrowings 2,860 Other Current Assets 1,323

3,975 3,975

Current Market Price Per Share is Rs 96. (4 marks)

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June 2019:
The Board of directors of a listed company desires to delist its equity shares from all the
recognised stock exchanges. The voting details through postal ballot are as under:
— Total nos. of voters : 7,000 (Public : 5,000 & Promoters : 2,000)
— Voting at shareholders meeting :
(a) Public shareholders :
In favour : 3,300 votes
In against : 1,700 votes
(b) All promoters shareholders have voted in favour of resolution.
By referring SEBI delisting regulation, decide upon the resolution passed by the shareholders.
(4 marks)

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June 2019:
The financial data of a listed company as on 31st March, 2018 are as follows :
Authorized equity share capital Rs 10 crore
(1 crore shares of Rs 10 each)
Paid-up equity share capital Rs 5 crore
General reserve Rs 3 crore
Debenture redemption reserve Rs 2 crore
The Board of directors of your company passed resolution by circulation for buy-back
of shares to the extent of 9% of the company’s paid-up share capital and free reserves. You
are required to examine the validity of the proposal with reference to the provisions of the
SEBI Regulations. (4 marks)

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June 2019:
What are the Option contracts? You are required to compute the profit/loss for
each investors in below option contracts :
(i) Mr. X writes a call option to purchase share at an exercise price of Rs 60 for a premium of Rs
12 per share. The share price rises to Rs 62 by the time the option expires.
(ii) Mr. Y buys a put option at an exercise price of Rs 80 for a premium of Rs 8.50 per share. The
share price falls to Rs 60 by the time the option expires.
(iii) Mr. Z writes a put option at an exercise price of Rs 80 for a premium of
Rs 11 per share. The price of the share rises to Rs 96 by the time the option expires.
(iv) Mr. XY writes a put option with an exercise price of Rs 70 for a premium of Rs 8 per share.
The price falls to Rs 48 by the time the option expires. (5 marks)

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Dec 2019:
A Mutual fund has sown Net Asset Value [NAV] of Rs. 11.60 at the commencement of the
year. At the end of the year NAV increases to Rs. 12.50. Meanwhile, the Fund distributes Rs.
0.75 as dividend and Rs.0.85 as capital gains.
(i) Calculate the fund’s return during the year.
(ii) Had these distributions been re-invested at an average NAV of Rs. 12.20, what is the return
for 400 units? [5 marks]

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Dec 2019:
After the Initial Public Offer, the equity capital of promoters group holding in a listed company
is Rs. 140 crore. The post issue equity capital of the company is Rs. 600 crore. The promoters
group holding includes [acquired during previous year] :
i. Rs. 20 crore equity capital allotted in consideration of transfer of Technical know-how by the
promoters.
ii. Rs. 10 crore equity capital pledged with bank.
Whether the promoters group is satisfying minimum promoters contribution requirement as per
SEBI regulation? Explain. [5 marks]

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Dec 2019:
TechNoGrow Ltd. approved buy back proposal of 200000 Equity share capital in its Board
meeting on 25th April, 2019. The record date was fixed on 25th June, 2019. The closing market
price on NSE as on 25th April, 2019 and 25th June, 2019 was Rs. 2640.40 and Rs. 2514.05
respectively. Determine the number of equity shares which is eligible to be tendered by Small
Shareholder Category [rounded off to lower whole number]. [5 marks]

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Dec 2020
The information relating to one Equity Oriented Mutual Fund is given below:
(`Rs in thousand)
2nd January, 2019 3rd January, 2019

Market Value of Fund’s Portfolio 19,300 19,800

Receivables 200 200
Other Accrued Income 50 50
Accrued Expenses 100 100
Other Payables 100 100
Units of Mutual Fund 5,00,000 5,00,000

Face value per unit is Rs 10.

You are required to calculate:
(i) NAV of the fund on 2nd January, 2019 and 3rd January, 2019.
(ii) Ramesh invested Rs 1,95,000 in this Fund on 2nd January, 2019 at 02:00 PM, through
Internet Banking Payment System. Calculate the number of mutual fund units allotted to
him. Assume that there is no transaction cost.
(5 marks)

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Dec 2020
Govind Ltd. proposes to issue 20 lakh share warrants to its promoters. The share warrant gives
an option to buy shares at a predetermined price. The price trend of the Company’s share in
the stock market is given below:
- Closing price on the relevant date: Rs 250.
- The average weekly high and low of the closing price during the 26 weeks preceding to the
relevant date: Rs 275.
- The average weekly high and low of the closing price during the 2 weeks preceding to the
relevant date: Rs 280.
You are required to:
(a) Identify the minimum price at which share warrants should be issued; and
(b) Calculate the amount payable by the promoters at the time of allotment of the warrants.
(4 marks)

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Dec 2020
RP Ltd. is planning to issue an IPO in 2019 for which a draft offer document is proposed to
be filed in September, 2019. The following data is available regarding the company:
(`Rs in crore)
2015-16 2016-17 2017-18

Net Tangible Assets 5.00 8.00 7.00

Monetary Assets 1.00 3.00 3.00
Net Worth 3.00 4.00 5.00

(i) Advice the company whether they can proceed with the IPO
(ii) Will your answer be different if value of monetary assets is Rs 4 crore in 2016-17?
(iii) How will you deal with the situation, if company has monetary assets of Rs 5 crore in the
year 2017-18? (5 marks)

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Dec 2020
The Nifty Index was trading at 11025 on 1st February, 2019 on NSE. The put option of 10800
with expiry date of 28th February, 2019 was available at Rs 50 per lot and the call option of
11300 with same expiry date was available at Rs 30 per lot. The size of one lot of Nifty is 75.

Ganesh who is regular trader in stock market purchased 2 lots of put options of 10800 and
one lot of call option of 11300. On 22nd February, 2019, the Nifty Index was trading at 10850.
Ganesh decided to square off all these transactions. At the time of squaring off, the call option
of 10800 could be sold at Rs 80 and put option could be sold at Rs 5.

Calculate the Net gain/loss from this transaction considering the transaction charges including
brokerage is fixed at Rs 100 per lot (buy or sale). (5 marks)

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Dec 2020
Raman Ltd. issued 50 Lakh equity shares at a price of Rs 200 per share. The company provided
Green Shoe Option for stabilizing the post listing price of the shares. The issue was
oversubscribed and it was decided that stabilizing agent would borrow maximum number of
shares permitted by SEBI (ICDR) regulations. Due to rise in price during Green Shoe Option
period, only 5 Lakh shares could be bought back at the price of Rs 180.

You are required to:

(i) Calculate the number of shares that the stabilizing agent needs to borrow in this case at the
time of allotment and explain the same with relevant provisions.
(ii) Explain the responsibility of Issuer Company in the above case with respect to shortfall while
exercising Green Shoe Option.
(iii) Calculate the amount if any, to be transferred to Investor Protection and Education Fund.
(5 marks)

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June 2021
R is holding 2000 units of a equity-oriented scheme of a mutual fund and 1000 units of a debt
scheme of a mutual fund. On 7th June, 2020 he is interested to redeem these units. Prevailing
net asset value (NAV) of these units are as under:

Date Net Asset Value (NAV)

Equity-oriented scheme (in Rs) Debt scheme (in Rs)
6th June 45 35
7th June 46 34
8th June 47 33

He makes an application for redemption of above units on 7th June, 2020 at 2:30 pm. Based
on given information answer the following:
(i) What do you mean by cut-off time? What are the cut-off time for equity-oriented & Debt
funds (except liquid funds)?
(ii) What will be the applicable NAV in his case?
(iii) What will be applicable NAV if application for redemption is made at 3:15 pm?
(3+1+1 marks)

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June 2021
What do you mean by Enterprise value under SEBI Takeover code? From the given information,
calculate the Enterprise value of KRS Ltd:
- Outstanding equity share capital Rs 1,600 lakh (par value per share Rs 2)
- Market price per share on closing date (equity share) : Rs 125
- Reserves & Surplus Rs 195 lakh, Minority interest Rs 275 lakh, Preference share capital
Rs 4,200 lakh, Cash-in-hand Rs 72 lakh, Cash equivalent Rs 63 lakh, Other current
assets Rs 1,965 lakh.
(5 marks)

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June 2021
Aruna Steel Ltd. issued Bonds with the following terms:
Issue price of the Bond : Rs 1000
Coupon rate : 3%
Maturity : 5 years
Convertible into equity shares @ Rs 500 per share
Ivan had purchased 20 bonds. At the time of maturity, the market price of the equity shares
was Rs 400.
What are the options available to Ivan on the maturity date and which option he should prefer?
(5 marks)

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June 2021
ABC Limited, a public company, has come with public issue of 15,00,000 equity shares through
a book building process. The price band is Rs 500 – Rs 600. The following table shows demand
of securities at various price levels. What should be the cut-off price as per book building
mechanism?
Bid Price (Rs) Number of Investors Demand (Number of Shares)
520 25 8,50,000
530 10 4,00,000
535 15 2,00,000
545 4 4,00,000
560 6 1,00,000
575 5 2,00,000
585 3 1,10,000
590 3 1,40,000
595 3 3,50,000
600 1 7,00,000
Total 75 34,50,000
(5 marks)

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June 2021
Akshay buys 500 shares of PQR Limited @ Rs 210 per share on the stock exchange platform.
In order to hedge the position, he sells 300 futures of PQR Limited @ Rs 195 each. Due to
fall in the share and futures price by 5% and 3% respectively on next day, Akshay closes his
position by counter transactions. Find out his profit or loss.
(2+3 marks)

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Dec 2021
(i) Rakesh has invested Rs. 20,000 in PQR Mutual Fund with entry load 1%. Find out the Net
Asset Value if the number of units purchased was 100.
(ii) Pritam is holding SALORA Mutual Fund units. He sold all the units at a NAV of Rs. 120
with exit load of 1%. He received Rs. 52,000. Find the number of units sold by Pritam.
(5 marks)

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Dec 2021
ABC Company Ltd had issued 2000 equity shares of Rs. 80 each with attachable warrant on
20th June, 2018. The warrant can be exchanged in equity in the proportion of 1 : 1. S, a
shareholder who was allotted 200 equity shares with attachable warrant on 20th June, 2018
wants to know the warrant premium if the market value of warrant is Rs. 18 and exercise price
is Rs. 70.
(i) Calculate the warrant premium for S.
(ii) What are the conditions of eligibility of ABC Company Ltd to issue Warrant?
(iii) When ABC Company can forfeit the warrant?
(5 marks)

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Dec 2021
Suppose B Co Ltd issues bonds with following terms:
Issue price of Bond Rs. 2000.
Coupon rate 2% with maturity period of 2 years.
Convertible into equity shares @ Rs. 100 per share.
Y has subscribed for 5 bonds and made an investment of Rs. 10,000. On maturity date,
investor will have an option to either claim full redemption amount or convert the Bonds into
equity @ Rs. 100 per share. The quoted share price on maturity date is Rs. 150. If he goes for
conversion how many shares Y will get? Will it be fair enough if he opts for redemption value?
Calculate which option is best suitable to Y?
(5 marks)

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June 2022
Grow India Ltd. has recently launched a Mutual Fund Scheme with the name GI Equity Multi
Cap Scheme with following details:
Size of the Scheme 200 lakh
Face value of the unit RS.20
Number of the outstanding units 20 Lakh
Market value of the fund's investments receivables 360 lakh
Accrued Income 2 lakh
Receivables 2 lakh
Liabilities 1 lakh
Accrued expenses 1 lakh
(1) What do you mean by NAV?
(2) Find out the NAV in the present case.
(3) What does an expense ratio contain in a Mutual Fund Scheme?
(5 marks)

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June 2022
Eknath, a risk averse investor is planning to take advantage of market rumour that in the
upcoming budget, the Government is likely to announce some economic package including
production linked incentive (PLI) scheme for auto industries. As he does not like to take higher
risk; he purchases one call and put option contract (Lot size 1000 shares) of a leading auto
component manufacturing company at a premium of 75 and 4 respectively with strike price of
105. In the budget, no PLI scheme was declared and the price of stock fell to 90.
(i) Ascertain the net loss/profit.
(ii) What would be your answer, if the stock price escalates to 120 as Government slashed GST
rate on vehicles?
(5 marks)

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December 2022
Fortune Mutual Fund launched a special scheme, the details of which are given below:
NAV Rs. 14 per unit
Redemption price Rs. 13.50 per unit
Offer Price Rs. 14.75 per unit

You are required to compute:

(i) Back End Load
(ii) Front End Load (5 marks)

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December 2022
Joshi Ltd is a listed entity entered into a transaction with related party, namely Hosh Ltd for
an amount of Rs. 59 crore and simultaneously made a payment of Rs. 10 crore for brand use.
The turnover of Joshi Ltd is Rs. 480 crore on standalone basis and after considering
consolidation of subsidiary & associate is Rs. 610 crore. You, being a company secretary of
the company, advise on the following:
1. Whether the transaction is a related party transaction or not?
2. Whether the payment made for brand use is a related party transaction or not?
3. When transactions with related party are material in above both the cases?
4. What is omnibus approval of audit committee for all related party transactions?
(8 marks)

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December 2022
Tarun purchases the following European Call options of TCS. He also purchases the following
European put option of ACC. What decision he would take on expiry if TCS closes at Rs. 835
and ACC closes at Rs. 565, spot prices? Ignore premium paid.
i) TCS 830 Call
ii) ACC 510 Put
iii) TCS 840 Call
iv) ACC 520 Put (5 marks)

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June 2023
The financial data of a listed company Sun Rise Ltd. as on 31st March, 2021 is as follows:

Particulars Amount Rs.

Equity Share Capital [fully paid-up of face value of Rs. 10 each] 5,00,000

10% Preference Share Capital [fully paid-up of Rs. 100 each] 1,00,000
12% Debentures [Rs. 100 each] 2,00,000

Revaluation Reserve 50,000

General Reserve 2,00,000

Profit & Loss Account 2,00,000

The company wanted to place proposal before the Board for buy-back of its equity shares and
also simultaneously redeem the entire preference share capital. You, as a Company Secretary,
advise the Board on the following issues:
i) Maximum limit [in amount] up to which shareholders can approve buy-back of shares.
ii) Maximum number of shares that can be bought back and the maximum price that can be paid
per equity share bought back.
iii) Generally, what should be the ratio of the aggregate of secured and unsecured debts owed to
the company after buy-back? (5 marks)

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June 2023
What is Inflation rate? How to calculate it? M bought his morning coffee for Rs. 12 in 2019,
but now he is paying Rs. 16 in 2023. Calculate the inflation rate. (5 marks)

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June 2023
Daksh is planning to invest in Systematic Investment Plan (SIP) of a mutual fund with a
fixed sum of Rs 20,000 on 2nd of every month for four months. The NAV on these dates are
Rs 30.76, Rs 42.18, Rs 38.15 and Rs 40.25 respectively. The entry load was 1.75% throughout
the period. Find the average buy price including the amount of entry load. (5 marks)

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June 2023
X has made an investment of Rs 50,000 to buy 5000 units of Philip mutual fund on 4th April,
2021. He decided to sell the units on 14th November, 2021 at NAV of Rs 20.60. The exit load
was 2.25%. Find the sale value & gain made in the transaction. (5 marks)

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June 2023
XYZ Limited is having three subsidiaries X Ltd., Y Ltd., and Z Ltd. The consolidated income
of XYZ Limited is ` 300 crore and net worth is ` 600 crore. The income and net worth of X
Ltd., Y Ltd., and Z Ltd. are as follows :
Company Income (`) Net worth (`)
X Ltd. 10 crore 65 crore
Y Ltd. 45 crore 14 crore
Z Ltd. 10 crore 18 crore
Examine if there is any material subsidiary of XYZ Limited. (5 marks)

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June 2023
R purchases the following European Call option of Emkey Tech Ltd. and European Put option
of Giganet Ltd. What decision he would take on expiry, if the share price of Emkey closes at
Rs 1100 and Giganet closes at Rs 590 in the following circumstances? (Ignore any premium
paid).
(a) Emkey : 1050 Call
(b) Giganet : 525 Put
(c) Emkey : 1120 Call
(d) Giganet : 580 Put. (5 marks)

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June 2023
Roshivee wants to invest in the share of blue chip companies. However, due to the expected
outbreak of war between two countries, an investment advisor suggested him to invest through
option contract. He expects that the price of shares will go down in near future.
(a) What option contract (put or call option) he should buy?
(b) If the present futures contract of Maxwell Ltd. are traded at Rs 100 and put option involves,
a cost of 1.5% (one and a half) based on the strike price. During the month, the war was
declared and the price of the share went down to ` 97. What will be the gain or loss on Rs
1,50,000 option contracts ? (5 marks)

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Dec 2023
The option contracts are given below: you are required to compute profit or loss to each investor:
(i) Ravi writes a call option to buy share. at an exercise price of ₹70 for a premium of ₹11 per
share. The share price rises to ₹73 by the time the option expires.
(ii) Narain buys a put option at an exercise price of ₹78 for a premium of ₹7 per share. The share
price falls to ₹66 by the time the option expires. (2+3=5 marks)

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Dec 2023
Aggarwal purchases 10,000 shares of AB Ltd. at ₹20. He obtains a complete hedge of shorting
400 Nifty at ₹1,200 each. He closes out his position at the closing price of the next day at
which point the share of AB Ltd. dropped 2.3% and the Nifty future dropped 2%. Calculate
the overall profit or loss. (5 marks)

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Dec 2023
QIBs are an investment institution who buy the shares of a company on a large scale. Qualified
Institutional Buyers are those Institutional investors who are generally perceived to possess
expertise and the financial proficiency to evaluate and to invest in the Capital Markets. Based
on these, Sujith Limited, is manufacturer of steel and other products, issued 200 crores equity
shares through compulsory book building process.

The following bids were received from QIBs and Mutual fund:
No. Types of QIB bidders No. of shares bid for (in crores)
1 Al 30
2 A2 10
3 A3 90
4 MFI 30
5 MF2 30
6 MF3 70
Total 260
A1-A3 (QIB bidders other than MFs) and MF1-MF3 (QIB bidders which are MFs).

As a company secretary of the company, advise the Board of directors to allot the shares as
per the SEBI (Disclosure and Investor Protection) Guidelines, 2000. (5 marks)

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Dec 2023
What is Enterprise Value? Compute the Enterprise value from the following information of XYZ
Ltd., if the current market price per share is Rs 93:
Liabilities (Rs in lakhs) Assets (Rs in lakhs)
Share capital (Face Non-current assets 2,490
value Rs. 2) 840 Current Assets 900
Reserves and surplus 56 Cash and cash equivalent 96
Minority interest 110
Short-term debt 2,280
Long-term debt 200
3,486 3,486
(2+3=5 marks) (Dec 23)

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Dec 2023
Tata Aviation Ltd., having nation-wide terminals, is in the process of delisting its equity shares
from recognized stock exchange. As per the provision of the delisting regulation, the company
is providing exit opportunity to its public shareholder; so the company has got approval from
shareholders of the company on 18th March, 2023. Following details are made available to you
by the company:
No. of equity shares outstanding are 43,48,33,000
Shares hold by promoters 14,87,67,800
Shares hold by public shareholders 28,60,65,200
Floor price 90 per share
Indicative price 97 per share

You are required to calculate the amount to be deposited at the time of opening Escrow account
and mention the date of opening of Escrow account as per the provisions of the SEBI (Delisting
of Equity Shares) Regulations, 2021. (5 marks)

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Dec 2023
The following information is available from the audited balance sheet of SZ Ltd.
(Rs in lakhs)
Equity Share capital (3,000 lakh share of Rs 10 each) 30,000
Share Premium A/c 3,000
General Reserve 10,000
Secured Loans 40,000
Unsecured Loans 22,000

Compute the maximum limit up to which buy-back is permitted in the financial year 2022-
2023. (7 marks)

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Dec 2023
Edelweiss Mutual Fund's portfolio related information are as below:
Stock No. of Shares Price in (Rs)
Reliance 1,10,000 1,548.24
Tata 2,57,000 548.65
Suzlon 5,05,000 329.51
Wipro 4,75,000 913.67
Richard 3,20,000 517.29

The fund does not involve borrowed money, but its accrued management fee with the portfolio
manager is 25,00,000. The number of units outstanding is 8,65,63,000. You are required to
compute the value of the portfolio and NAV. (5 marks)

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Dec 2023
Satyawan Ltd. is a public limited company, listed in Bombay Stock Exchange. The Board of
directors are planning to buy back of shares. You being the CFO, calculate the maximum
number of shares that can be bought back along with offer price and advise the board of
directors about buy back of maximum possible shares at the maximum possible offer price.
Current assets includes bank balance of Rs 15,00,000/-. The balance sheet as at 31st March
2023 is given below:
Liabilities Amount (in Assets Amount (in
Rs) Rs)
3,00,000 Equity shares of ₹10 30,00,000 Fixed Assets 75,00,000
each 25,00,000 Investment 30,00,000
25,000, 12% Preference Share Current 30,00,000
Capital 10,00,000 Assets
General Reserve 25,00,000
Profit & Loss Account 15,00,000
Security Premium 20,00,000
12% Debentures 10,00,000
Sundry Creditors
1,35,00,000 1,35,00,000

(5 marks)

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Dec 2023
ABC Limited is a listed company. Its financial data as on 31st March, 2022 are as follows:
Authorised equity share capital Rs 20 Crore
(2 Crore shares of Rs 10 each)
Paid up equity share capital Rs 10 Crore
General reserve Rs 6 Crore
Debenture redemption reserve Rs 4 Crore
The board of directors of your company Passed resolution by circulation for buyback of shares
to the extent of 8% of the Company's paid-up share capital and free reserves.
(a) You are required to examine the validity of the proposal with reference to the provisions of the
SEBI regulations.
(b) What will be your suggestion if buyback will be of 12% of the Company's paid up share capital
and free reserves? (5 marks)

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Dec 2023
Consider a mutual fund that manages a portfolio of securities worth Rs 240 million. Suppose
the hand owes Rs 8 million to its investment advisors and owes another Rs 2 million for
wages, rent and another expenses. The fund has 5 million shares outstanding.
(i) What do you mean by NAV?
(ii) How NAV is calculated?
(iii) What was the net asset value of the fund? (2+2+1=5 marks)

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Dec 2023
An investor buy shares in a mutual fund for Rs 400. At the end of the year, the fund distributes
a dividend of Rs 11.20 and after the distribution the net asset value of a share is Rs 468.80.
What would be the investor's return on the investment? (5 marks)

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FORMULA TABLE

1. Out of Money [in case of call option] = Strike Price > Market Price.
2. Out of Money [in case of put option] = Market Price > Strike Price.
3. Yield to Maturity [YTM]
= [100 – P] x 365 x 100
Px D
Here P = Price
D = Days to Maturity
4. Net Assets Value [NAV]
Market value of fair value of scheme’s investments
+ Current Assets – Current Liabilities & Provision
No. of outstanding units on the valuation date
5. Public offer price [P.O.P] of an unit of Mutual Fund = NAV
Front End Load
6. Redemption Price of an unit of Mutual Fund = NAV
Back End Load
7. Value of rights [in case of mutual fund]
n
Vr = m
[Pex- P of]
Here,
n = no. of rights shared offered.
m = no. of original shares held;
Pex = Ex-right price
Pof = Rights offer price;
8. Rate of Return = [NAV at Present – NAV at Purchase] + Dividend x 100
NAV at Purchase

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YouTube - YES Academy for CS and Law In Karma, I Believe.. Chapter 20 – Case Laws

CHAPTER 20 – CASE LAWS

CHAPTER 3 – SECURITIES CONTRACTS (REGULATION) ACT,

1956

21.02.2020
Pacific Finstock Ltd. (Appellant) vs. BSE Ltd. (Respondent)
Securities Appellate Tribunal

For Listing of a security, the Listing norms as on date of Application filed alone is required to
be considered but status of the directors/ promoters of the company are required to be
considered on the date of the passing of the order on the listing application.

1. The appellant, being aggrieved by the order dated August 02, 2019 passed by the BSE Limited
(“BSE”) rejecting the listing application has filed the present appeal.

2. The facts leading to the filing of the present appeal is, that the appellant was a listed company
on the Vadodara Stock Exchange and Ahmedabad Stock Exchange but subsequently it came on
the Dissemination Board of the BSE and remained on the Dissemination Board for the last
several years. Securities and Exchange Board of India (“SEBI” for convenience) issued a Circular
dated October 10, 2016 by which the companies which were on the Dissemination Board were
required to get their company listed on nationwide stock exchange or provide an exit opportunity
to existing shareholders. In terms of this Circular, the appellant submitted a plan of action to
BSE on February 16, 2017 and a revised plan of action was submitted on June 28, 2017.

3. In the meanwhile, the appellant vide notice dated August 07, 2017 was identified as a suspected
shell company. Against this notice, the appellant filed an Appeal No. 264 of 2017 before this
Tribunal which was disposed of by an order dated September 29, 2017 directing the appellant
to make a fresh application for direct listing of its securities which would be considered by
BSE and which would further be subject to any order that may be passed by SEBI.

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4. It transpires that the appellant filed a fresh listing application. During the pendency of the
application, the Whole Time Member (“WTM”) passed an order dated October 26, 2017 directing
BSE to consider the outcome of the forensic audit while considering the listing application.
Accordingly, the appellants’ application was kept in abeyance till the submission of the Forensic
Audit Report. The WTM’s order dated October 26, 2017 was subsequently confirmed by a
confirmatory order dated August 02, 2018 against which the appellant filed an Appeal No. 295
of 2018 which was eventually dismissed as infructuous by an order dated March 07, 2019.

5. In the meanwhile, the promoters/directors of the appellant company were debarred from
accessing the securities market vide SEBI’s order dated September 28, 2019 passed in the
matter of Kavit Industries Ltd. This fact was brought to the notice of the appellant and sought
clarification as to how the company is required to comply with the requirements for direct
listing of its securities. It transpires that the company vide letter dated May 18, 2019 intimated
that two of its directors have resigned with effect from April 15, 2019 and that SEBI vide its
order dated February 13, 2019 has removed the tag of “suspected shell company”. BSE after
considering the aforesaid response, found that one of its promoters Shri Jayesh Raichandbhai
Thakkar, continued to remain as the promoter of the company inspite of being debarred by
SEBI vide order dated September 28, 2018 and, therefore, the direct listing requirements norms
had not been complied with. Accordingly, the listing application was rejected.

6. Before the Tribunal, the only ground urged is that the law which was applicable on the date
when the listing application was filed on July 29, 2017 could alone be considered. There is no
dispute on this proposition namely that the listing norms that was in force on the date when
the application was filed was alone required to be considered. Subsequent norms or amended
norms or regulations are not required to be considered. However, the status of the directors/
promoters of the company are required to be considered on the date of the passing of the
order on the listing application. If on the date when the listing application was being considered
the promoters/ directors of the company committed default and thereby incurred a debarment
from accessing the securities market then it was imperative upon the authority to consider
such debarment while considering the listing application. In the instant case, the debarment
was in direct conflict when the norms stipulated for considering the listing agreement. Such

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order of SEBI of debarment of one of the promoters was brought to the knowledge of the
company. The said listing requirements norms were not rectified and consequently the BSE
had no option but to reject the listing application. The said order does not suffer from any
manifest error of law and requires no interference. The appeal fails and is dismissed.

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03.12.2019
Karvy Stock Broking Limited (Appellant) vs. National Stock Exchange of India
(Respondent)
Securities Appellate Tribunal

1. By the present appeal the appellant is seeking quashment of the impugned order/circular dated
December 2, 2019 issued by respondent National Stock Exchange of India Ltd. (hereinafter
referred to as ‘NSE’).

2. Vide the said circular respondent NSE had suspended the present appellant from its membership
due to the alleged non compliance of the regulatory provisions of the Exchange with effect
from 2nd December, 2019.

3. Upon hearing both sides, the Rules are framed by respondent NSE in exercise of the powers
of the Section 9 of the SCRA. The appellant has equally efficacious remedy to challenge the
impugned order before the relevant authority of the respondent NSE. In that view of the
matter, SAT did not find any reason to entertain the appeal. Learned Senior counsel for the
respondent submits that the appeal, if any, filed by the appellant with the respondent, they
would be heard expeditiously by convening meeting of the relevant authority. There is no need
to bypass the statutory Rules. At this stage, learned counsel for the appellant submits that
the appellant may be provided with liberty to seek documents from the respondent. SAT did
not find any hitch in acceding to the said request. The respondent shall supply the documents
or grant inspection of the same relevant to the dispute.

4. For the reasons stated above, the appeal is disposed of. Appellant would be at liberty to file
an appeal as provided by Rule 13A(d) of the NSE Rules. In case, if such an appeal is filed,
appellant shall be heard as expeditiously as possible and in any event shall be decided by
December 6, 2019. In case the relevant authority would not be able to decide the appeal within
the period, the decision on the temporary stay to the impugned order may be taken by the
relevant authority on or before December 6, 2019. No order as to costs.

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20.08.2020
Dr. Satish Chandra, Ms. Sucharita Das and The Orissa Minerals Development Co. Ltd.
(collectively known as “Noticees”) vs. SEBI
Adjudicating Officer, Securities and Exchange Board of India

The disclosures were made by The Orissa Minerals Development Co. Ltd. to stock exchanges
belatedly each after a period of more than 24 hours since the time of their receipt by
OMDC.

Facts of the case:

SEBI conducted investigation into the alleged delayed disclosure of the price sensitive
information (hereinafter referred to as “PSI”) by The Orissa Minerals Development Company
Ltd., (hereinafter referred to as “OMDC/Company”), in the scrip of OMDC, to the Stock
Exchanges ( “BSE” and “NSE”) for alleged violation of provisions of the SEBI Act, 1992 and
SEBI (Prohibition of Insider Trading) Regulations, 1992 during the investigation period July 02,
2012 to August 10, 2012.

The OMDC, Dr. Satish Chandra (Managing Director) and Ms. Sucharita Das (Company
Secretary) has made belated disclosure to the stock exchanges of the important price sensitive
information. Therefore, SEBI hold that the Noticees have violated the provisions of Clause 2.1
of the Code of Corporate Disclosure Practice for Prevention of Insider Trading contained in
Schedule II read with Regulation 12(2) of the PIT Regulations, 1992. Further, OMDC, also
violated Clause 36 of the Listing Agreement read with Section 21 of Securities Contracts
(Regulation) Act, 1956 (“SCRA”).

By not making the disclosures on time, the Noticee has failed to comply with the mandatory
statutory obligation.

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Order:
In view of the foregoing, considering the facts and circumstances of the case, the material on
record, SEBI imposed a total penalty of Rs. 2,00,000/- (Rupees Two Lacs only) under Section
15HB of the SEBI Act, 1992 and Section 23A(a)* of the Securities Contracts (Regulation)
Act, 1956, on the Noticees i.e. The Orissa Minerals Development Co. Ltd., Dr. Satish Chandra
and Ms. Sucharita Das for violation of Clause 2.1 of Code of Corporate Disclosure Practice for
Prevention of Insider Trading contained in Schedule II to Regulation 12(2) of the PIT
Regulations, 1992 and also against The Orissa Minerals Development Co. Ltd for violation of
Clause 36 of Listing Agreement read with Section 21 of SCRA.
* Section 23A(a) deals with Penalty for failure to furnish information, return, etc

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07.09.1998
Vinay Bubna vs. Yogesh Mehta and Ors

Whether by-laws framed by the Bombay Stock Exchange are subordinate legislation?

In the above case Bombay High Court Held

Section 9(4) of the Securities Contract Act requires previous publication of the bye-laws before
they can come into force. Publication is another incidence of subordinate legislation. Therefore,
there is no difficulty in holding that the bye-laws framed under Section 9 are subordinate
legislation. Section 9 of the Securities Contract Act itself confers power on the Board to make
bye-laws pertaining to regulation and control of contracts. Bye-laws have been framed under
the Securities Contracts (Regulation) Act, 1956. For that purpose, the relevant sections of the
Act which need to be referred to are Section 7A of the Securities Contracts (Regulations) Act,
1956 confers a power on a recognised Stock Exchange to make rules restricting voting rights,
etc. Section 8 is the power conferred on the Central Government to direct rules to be made
and/or to make rules itself after consultation with the Governing bodies of the Stock Exchanges
generally or with the governing body of any Stock Exchange in particular for matters specified
in Section 3(2), In case the Governing Body fails to make Rules as directed power is conferred
under sub-section (2) on the Central Government.

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Extracts from SEBI Order dated 20th August 2020 in the matter of The Orissa Minerals
Development Co. Ltd.

SEBI Adjudication Order:

SEBI, in exercise of the powers conferred under Section 15-I of the SEBI Act read with Rule
5 of the Adjudication Rules,1995 and Section 23-I of the SC(R) Act, 1956 read with Rule 5 of
the Adjudication Rules, 2005, imposed a total penalty of Rs. 2,00,000/- (Rupees Two Lacs
only) under Section 15HB of the SEBI Act, 1992 and Section 23A(a) of the Securities Contracts
(Regulation) Act, 1956, on the Noticees i.e. The Orissa Minerals Development Co. Ltd., Dr.
Satish Chandra and Ms. Sucharita Das for violation of Clause 2.1 of Code of Corporate Disclosure
Practice for Prevention of Insider Trading contained in Schedule II to Regulation 12(2) of the
PIT Regulations, 1992 and also against The Orissa Minerals Development Co. Ltd for violation
of Clause 36 of Listing Agreement read with Section 21 of SCRA.

Extracts from SEBI Order dated 20th August 2020 in the matter of The Orissa Minerals
Development Co. Ltd.

SEBI conducted investigation into the alleged delayed disclosure of the price sensitive
information by The Orissa Minerals Development Company Ltd., (“OMDC/Company”), in the
scrip of OMDC, to the Stock Exchanges (“BSE” and “NSE”) for alleged violation of provisions
of the SEBI Act, 1992 and SEBI (Prohibition of Insider Trading) Regulations, 1992 during the
investigation period July 02, 2012 to August 10, 2012.

The OMDC, Dr. Satish Chandra (Managing Director) and Ms. Sucharita Das (Company
Secretary) has made belated disclosure to the stock exchanges of the important price sensitive
information. Therefore, SEBI hold that they have violated the provisions of Clause 2.1 of the
Code of Corporate Disclosure Practice for Prevention of Insider Trading contained in Schedule
II read with Regulation 12(2) of the PIT Regulations, 1992. Further, OMDC, also violated Clause
36 of the Listing Agreement read with Section 21 of Securities Contracts (Regulation) Act,
1956

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30.08.2022
Atlanta Infrastructure and Finance Ltd.
Adjudicating Officer, SEBI

Facts of the Case :

Atlanta Infrastructure and Finance Ltd. (“Atlanta”) was formerly known as Kadvani Securities
Ltd. and was an authorised Non-Banking Financial Services Company (NBFC). The Company
changed its name to Atlanta Infrastructure and Finance Ltd. w.e.f. August 3, 2013. The main
business activity of the Company is infrastructure and development of land. The company was
incorporated in 1992 and listed on BSE w.e.f June 07, 1995.

SEBI conducted an investigation into trading of the scrip of Atlanta for suspected manipulation
of the scrip price for the period August 2, 2010 to January 6, 2015 and the investigation
revealed that the promoters/promoter group had all disposed-of their shares on February 19,
2014 as per information provided by RTA of the company. The total promoter/promoter group
shareholding of Atlanta for the quarter ended March 2014 should have been zero. Atlanta had
submitted to BSE a wrong shareholding pattern. Atlanta had submitted 2,23,000 shares as
promoter shareholding to BSE for the quarter ended March 2014 and therefore, was alleged to
have violated Section 21 of Securities Contracts (Regulations) Act, 1956 (“SCR Act”).

SEBI Order:

SEBI under Section 23-I of SCR Act read with Rule 5 of SCR(A) Rules, imposed a penalty of
Rs. 1,00,000/- (Rupees One Lakh only) under Section 23H of SCRA, 1956 on Atlanta
Infrastructure and Finance Ltd. for violation of Section 21 of SCRA, 1956.

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19.04.2022
M/s. S.B. Securities Pvt. Ltd.
Adjudicating Officer, SEBI

Facts of the Case :

Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) and BSE Ltd.
(hereinafter referred to as ‘BSE’) conducted a comprehensive joint inspection of M/s. S.B.
Securities Pvt. Ltd. (hereinafter referred to as ‘Stock Broker / Noticee/You/Broker’) from March
26, 2019 to March 27, 2019 and on April 23, 2019. The said inspection was carried out at 379,
Priti Building, S V Road, Vile Parle (west), Mumbai – 400 056 w.r.t. its Stock Broking activities(
(hereinafter referred to as ‘SBs’). The period covered in the inspection was from April 2017 to
September 2018 (hereinafter referred to as ‘Inspection Period’). Noticee is a SEBI-registered
Stock Broker, having SEBI registration number as INZ000001834. Noticee is a Stock Broker of
BSE. Based on the findings of inspection and the reply of Noticee, SEBI initiated adjudication
proceedings against Noticee under: a) Section 23D of Securities Contracts (Regulation) Act,
1956 (hereinafter referred to as “SCRA”), for the alleged violations of Section 23D of SCRA.

SEBI Order:
SEBI under Section 23-I of SCR Act, imposed a penalty of Rs. 3,00,000/- (Rupees Three Lakh
only) on S.B. Securities Pvt. Ltd for violation of Section 23D of SCRA, 1956. The Noticee, a
SEBI registered Intermediary, was under a statutory obligation to abide by the provisions of
the SCRA, SEBI Act, Rules and Regulations and Circulars/directions issued thereunder etc.,
which it failed to do. Such disregard for the provisions of law governing the functioning of
intermediaries calls for an appropriate penalty which should act as a deterrent.

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Extracts from SAT Order dated 25th February 2019 in the matter of Synergy Cosmetics
(Exim) Limited vs. BSE Limited

Synergy Cosmetics (Exim) Limited (Company) is a listed company and its securities got
delisted on the platform of the BSE Limited. The BSE Limited vide its notice dated 18.10.2016
suspended the trading in securities of the company for non-compliance of listing requirements.
Since no steps were taken by the company for revocation of the suspension, a show cause
notice dated 26.04.2018 was issued calling upon the company to show cause as to why the
securities of the company should not be compulsorily delisted from the platform of the BSE
Limited. The BSE Limited by the impugned order dated 26.06.2018 issued an order compulsorily
delisting the securities of the company. The appellant being aggrieved by the computation of
the fair value of the shares has filed the appeal under Section 23L of the Securities Contracts
(Regulation) Act, 1956.

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CHAPTER 4 – SECURITIES AND EXCHANGE BOARD OF INDIA

01.07.2020
India Ratings and Research Private Ltd. (Appellant) vs. SEBI (Respondent)
Securities Appellate Tribunal

SEBI can call for and examine records of any proceedings if it considers the orders passed
by the adjudicating officer erroneous and not in the interests of securities markets. After
making inquiry, SEBI may enhance the quantum of penalty imposed, if the circumstances
of the case so justify.

Facts of the case:

The Adjudicating Officer by the impugned order dated 26th December, 2019 has imposed a
penalty of Rs.25 lakhs upon the Appellant for violating the Code of Conduct to the Securities
and Exchange Board of India (Credit Rating Agencies) Regulations, 1999 while granting credit
rating to IL&FS for the financial year 2018-19.

SEBI issued a second show cause notice dated 28th January, 2020 by exercising powers under
Section 15- I(3) of the SEBI Act directing the Appellant to show cause as to why penalty
should not be enhanced as in their opinion the order of the Adjudicating Officer was not in
the interest of the securities market.

“Under Section 15-I(3), the SEBI can call for and examine records of proceedings if it considers
the orders passed by the adjudicating officer erroneous and not in the interests of securities
markets. After examining the matter, the SEBI can enhance the quantum of penalty imposed.”

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Misc. Application no.159 of 2020 has been filed in Appeal no.103 of 2020 praying that
proceedings initiated by SEBI pursuant to the second show cause notice dated 28th January,
2020 issued under Section 15-I (3) of the SEBI Act, should be stayed.

Order:
SEBI has the power to initiate proceedings under Section 15-I(3) of the SEBI Act. SAT directed
the Appellant to deposit a sum of Rs.25 lakhs pursuant to the impugned order dated 26th
December, 2019 before the Respondent within four weeks which would be subject to the result
of the appeal. SAT further directed that the proceedings in pursuance to the second show
cause notice dated 28th January, 2020 will continue and the Respondent will pass appropriate
orders after giving an opportunity of hearing to the Appellant either through physical hearing
or through video conferencing but any order that is passed by the Respondent shall not be
given effect to during the pendency of this appeal. Misc. Application is accordingly disposed of.

18.03.2021
Mr. Neeleshkumar Radheshyam Lahoti (Noticee) (In the matter of Supreme Tex Mart
Limited) vs. Securities and Exchange Board of India (SEBI)
Adjudicating Officer, SEBI

Every person from whom information is sought should fully co-operate with the
investigating officer and promptly produce all documents, records, information as may be
necessary for the investigations.

Facts of the Case:

SEBI conducted an investigation into the affairs of Supreme Tex Mart Limited (STML/
Company) for the period June 01, 2016 to October 31, 2016. During the course of investigation,
the Investigating Authority (IA) of SEBI issued summons under Section 11C(2) read with
Section 11C(3) of the SEBI Act, 1992 to Mr. Neeleshkumar Radheshyam Lahoti (Noticee)
seeking certain documents/ information. The Noticee replied to the summons and submitted
certain information. However, it was alleged that the Noticee submitted incorrect information.

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In view of the same, SEBI initiated adjudication proceedings under Section 15HB of the SEBI
Act against the Noticee.

SEBI Order:
SEBI imposed a penalty of 8 lakh on the Noticee under the provisions of Section 15HB of the
SEBI Act. It was established that the Noticee provided incorrect information to the
Investigating Authority (IA) of SEBI and hampered the process of investigation thus violating
the provisions of Section 11C(2) read with Section 11C(3) of the SEBI Act, 1992. It was a
deliberate attempt of Noticee to misguide investigation. Section 11C(3) of the SEBI Act
empowers the IA to obtain records, documents, information etc., as considered relevant or
necessary for the purpose of investigation. Section 11C(2) of SEBI Act casts an obligation on
every person associated with the securities market to preserve and to produce to the
Investigating Authority or any person authorised by it in this behalf, such records, documents,
information which are in their custody or power.

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28.02.2019
Adjudicating Officer, SEBI (Appellant) vs. Bhavesh Pabari (Respondent)
Supreme Court of India

The Supreme Court of India ruled in Adjudicating Officer, SEBI v. Bhavesh Pabari granting
back the discretionary power to Adjudicating Officer (AO) under supervision and scrutiny
of the court.

Facts of the Case

The SEBI Act, as the object of its enactment would indicate, was enacted “to provide for the
establishment of SEBI to protect the interests of investors in securities and to promote the
development of, and to regulate, the securities market and for matters connected therewith or
incidental thereto.”

Sections 15 A to 15 HA of the SEBI Act, 1992 are the penalty provisions whereas Section 15 I
deals with the power of adjudication and Section 15 J enumerates the “factors to be taken
into account by the Adjudicating Officer” while adjudging the quantum of penalty.

Section 15J has been a part of SEBI since 1992. Section 15J lays down that while adjudging
the amount of penalty, the adjudicating officer shall have due regard to the factors which are
as follows:
(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made
as a result of the default;
(b) the amount of loss caused to an investor or group of investors as a result of the
default;
(c) the repetitive nature of the default.

Explanation- For the removal of doubts, it is clarified that the power to adjudge the quantum
of penalty under sections 15A to 15E, clauses (b) and (c) of section 15-F, 15G, 15H and 15HA
shall be and shall always be deemed to have been exercised under the provisions of this
section.”

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The questions referred in the given case can be enumerated and summarized as follows:
(i) Whether the conditions stipulated in clauses (a), (b) and (c) of Section 15J of the
Securities and Exchange Board of India Act, 1992 are exhaustive to govern the discretion
in the Adjudicating Officer to decide on the quantum of penalty or the said conditions
are merely illustrative?
(ii) Whether the power and discretion vested by Section 15J of the SEBI Act to decide on the
quantum of penalty, regardless of the manner in which the first question is answered,
stands eclipsed by the penalty provisions contained in Section 15A to Section 15HA of the
SEBI Act?

The Court held and in the view that-

The provisions of clauses (a), (b) and (c) of Section 15J are illustrative in nature and have
to be taken into account whenever such circumstances exist. But this is not to say that there
can be no other circumstance(s) beyond those enumerated in clauses (a), (b) and (c) of
Section 15J that the Adjudicating Officer is precluded in law from considering while deciding
on the quantum of penalty to be imposed.

Conditions stipulated in clauses (a), (b) and (c) of Section 15J are not exhaustive and in the
given facts of a case, there can be circumstances beyond those enumerated by clauses (a),
(b) and (c) of Section 15J which can be taken note of by the Adjudicating Officer while
determining the quantum of penalty.

Insofar as the second question is concerned, if the penalty provisions are to be understood as
not admitting of any exception or discretion and the penalty as prescribed in Section 15 A to
Section 15-HA of the SEBI Act is to be mandatorily imposed in case of default/failure, Section
15J of the SEBI Act would stand obliterated and eclipsed. Hence, the question referred. Sections
15-A (a) to 15 HA have to be read along with Section 15J in a manner to avoid any
inconsistency or repugnancy.

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11.02.2021
Suman Motels Limited vs. SEBI
Adjudicating Officer, Securities and Exchange Board of India

Failure to obtain SCORES Authentication and to redress investor grievances

Fact of the Case:

Securities and Exchange Board of India (hereinafter referred to as, “SEBI”) vide Circular No.
CIR/OIAE/2/2011 dated June 03, 2011, directed all listed companies to obtain SEBI Complaints
Redressal System (hereinafter referred to as, “SCORES”) authentication and also redress any
pending investor grievances in that platform only. Subsequently, SEBI also vide Circulars No
CIR/OIAE/1/2012 dated August 13, 2012, No. CIR/OIAE/1/2013 dated April 17, 2013 and No
CIR/OIAE/1/2014 dated December 18, 2014, (hereinafter referred to as, “SEBI circulars”) inter
alia directed all companies whose securities were listed on Stock Exchanges to obtain SCORES
authentication within a period of 30 days from the date of issue of this circular and also to
redress the pending investor grievances within the stipulated time period.

It was alleged that Suman Motels Limited (hereinafter referred to as, “Noticee”) had failed
to obtain the SCORES authentication and to redress investor grievances pending therein within
the timelines stipulated by SEBI, therefore not complying with the aforesaid SEBI Circulars.

Order:

After taking into consideration all the facts and circumstances of the case, Adjudicating officer
imposed a penalty of Rs. 1,00,000/- (Rupees One Lakh Only) on the Noticee viz. Suman Motels
Limited in terms of the provisions of section15HB of the SEBI Act, 1992, which will be
commensurate with its non-compliances.

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CASE SNIPPETS

1. JM Financial Ltd’s former vice president Atul Saraogi on July 16, 2020 had settled an alleged
insider trading case with SEBI by paying an amount of Rs 15 lakh towards settlement charges.
During the span of investigation, SEBI observed that Saraogi had entered into two off-market
trades in shares of JMFL and had not obtained preclearance from JMFL for the two off-market
trades. Besides, he had entered the offmarket transaction when the trading window was closed.

2. Shareholders of the Kapashi Commercials Ltd., a BSE Listed company, have settled with SEBI
a case of alleged violation of takeover norms by paying over Rs 34 lakh amount towards
settlement terms. They had filed an application with the SEBI proposing to settle the case for
alleged violation of SAST (Substantial Acquisition of Shares and Takeovers) Regulations in
respect of change in their shareholding in Kapashi Commercials. It was alleged that the four
individuals made delayed disclosures to the company and BSE about the change in their
shareholding in Kapashi Commercials.

3. Northward Financial Planners (NFP) and its partners have settled with SEBI a case related to
alleged violation of Investment Advisers regulations upon payment of Rs. 21.67 lakh towards
settlement charge. NFP and partners were carrying on investment advisory activities since F.Y.
2013-14 and filed application for SEBI registration after a delay of over 4 years and continued
to carry on investment advisory activity without seeking registration.

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CHAPTER 5 – LAWS GOVERNING TO DEPOSITORIES AND DEPOSITORY

PARTICIPANTS

31.03.2020
Jaypee Capital Services Ltd (Noticee) vs. SEBI Whole Time Member, Securities and
Exchange Board of India

Facts of the Case

Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) granted a Certificate
of Registration as a Depository Participant to Jaypee Capital Services Limited (JCSL/Noticee)
in accordance with provisions of SEBI (Depositories and Participants) Regulations, 1996 (DP
Regulations) initially for a period of five years which was valid from August 11, 2006 to August
10, 2011. The certificate of registration was, thereafter, renewed in 2011 for a further period of
five years and the renewed certificate was valid till August 10, 2016.

SEBI received a letter dated April 05, 2016 from Central Depository Services (India) Limited
(hereinafter referred to as ‘CDSL’) informing that it has terminated the agreement with the
Noticee w.e.f April 04, 2016 due to noncompliance on the part of JCSL with the bye-laws of
CDSL. CDSL vide the said letter also requested SEBI to cancel the certificate of registration
granted to the Noticee at act as a Depository Participant with immediate effect. Thereafter,
National Securities Depositories Limited (hereinafter referred to as “NSDL”) vide its letter
dated April 22, 2016 informed SEBI that it has also terminated the agreement with JCSL w.e.f
May 23, 2016 due to the non-compliance on part of JCSL with the various bye-laws of NSDL.

Based on the information provided by the Depositories viz. CDSL and NSDL, as above, it was
alleged that the Noticee was no longer eligible to be admitted as a participant of depository
and had failed to inform SEBI about the termination of its agreements with CDSL and NSDL.

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Order
The failure on the part of the Noticee to inform SEBI of the termination of the agreement by
the depositories would have to be considered as a violation of Clause 14 of the Code of Conduct
for the DPs as given under third schedule read with Regulation 20AA of the DP Regulations.

SEBI, in exercise of powers conferred under Section 19 of the Securities and Exchange Board
of India Act, 1992 read with Regulation 28(2) of the SEBI (Intermediaries) Regulations, 2008,
cancelled the certificate of registration granted to the Noticee / Jaypee Capital Services Limited
(SEBI Registration No. IN-DP-NSDL-291-2008/IN-DPCDSL-368- 2006) with immediate
effect.

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CHAPTER 6 – SECURITIES MARKET INTERMEDIARIES

05.06.2020
Narendra Singh Tanwar, Proprietor of M/s Capital True Financial Services (Noticee) vs.
SEBI Whole Time Member, Securities Exchange Board of India

The Noticee cease and desist from acting as an Investment Adviser as it refused to refund
the money so taken by it as service fee from complainant.

Facts of the Case:

SEBI had received a complaint against Mr. Narendra Singh Tanwar, Proprietor of M/s Capital
True Financial Services (hereinafter referred to as “Noticee”), a registered Investment Adviser
(hereinafter referred to as “IA”) inter alia alleging that a promise was made on behalf of the
Noticee to the complainant assuring him a huge return of Rs. 28.80 lakh on a meagre
investment of Rs. 20,000/- over a short period of 4 months and 10 days. Pursuant to such an
assurance, an amount of Rs. 1,30,000/- was transferred by the complainant to the Noticee
towards first installment of the service fee, out of total service fee of Rs. 4,47,200/- demanded
by the Noticee in installments. However, after suffering loss on the very first day of availing
the services of the Noticee, the complainant asked the Noticee to return the amount paid to
him. As the Noticee refused to refund the money so taken by it as service fee and also stopped
attending the phone calls of the complainant, a compliant was lodged with SEBI. The said
complaint was forwarded to the Noticee for resolution and to submit an Action Taken Report
(ATR) in the SEBI Complaints Redress System (SCORES).

Order:
In view of the foregoing findings and in the interest of investors and for the protection of
their rights, SEBI issue following directions:
i. The Certificate of Registration as Investment Adviser bearing Registration number
INA000009038 issued in favour of the Noticee is hereby cancelled.
ii. The Noticee shall forthwith cease and desist from acting as an Investment Adviser.

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iii. The Noticee shall not use the term ‘Investment Adviser’ directly or indirectly in any manner
whatsoever on the letter-head, on the website, signage board, or otherwise.
iv. The Noticee is debarred from accessing the securities market and is further prohibited from
buying, selling or otherwise dealing in securities, directly or indirectly, or being associated
with securities market in any manner, for a period of 2 years and during the period of
restraint, the existing holding of securities including the holding of units of mutual funds
of the Noticee(s) shall remain frozen.

31.03.2020
Jaypee Capital Services Ltd (Noticee) vs. SEBI Whole Time Member, Securities and
Exchange Board of India

Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) granted a Certificate
of Registration as a Depository Participant to Jaypee Capital Services Limited (JCSL/Noticee)
in accordance with provisions of SEBI (Depositories and Participants) Regulations, 1996 (DP
Regulations) initially for a period of five years which was valid from August 11, 2006 to August
10, 2011. The certificate of registration was, thereafter, renewed in 2011 for a further period of
five years and the renewed certificate was valid till August 10, 2016.

SEBI received a letter dated April 05, 2016 from Central Depository Services (India) Limited
(hereinafter referred to as ‘CDSL’) informing that it has terminated the agreement with the
Noticee w.e.f April 04, 2016 due to noncompliance on the part of JCSL with the bye-laws of
CDSL. CDSL vide the said letter also requested SEBI to cancel the certificate of registration
granted to the Noticee at act as a Depository Participant with immediate effect. Thereafter,
National Securities Depositories Limited (hereinafter referred to as “NSDL”) vide its letter
dated April 22, 2016 informed SEBI that it has also terminated the agreement with JCSL w.e.f
May 23, 2016 due to the non-compliance on part of JCSL with the various bye-laws of NSDL.

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Based on the information provided by the Depositories viz. CDSL and NSDL, as above, it was
alleged that the Noticee was no longer eligible to be admitted as a participant of depository
and had failed to inform SEBI about the termination of its agreements with CDSL and NSDL.

Order
The failure on the part of the Noticee to inform SEBI of the termination of the agreement by
the depositories would therefore have to be considered as a violation of Clause 14 of the Code
of Conduct for the DPs as given under third schedule read with Regulation 20AA of the DP
Regulations. Whole Time Member, in exercise of powers conferred under Section 19 of the
Securities and Exchange Board of India Act, 1992 read with Regulation 28(2) of the SEBI
(Intermediaries) Regulations, 2008, hereby cancel the certificate of registration granted to the
Noticee / Jaypee Capital Services Limited (SEBI Registration No. IN-DP-NSDL-29 “self
regulatory organization” means an organization of a class of intermediaries duly recognised by
or registered with the SEBI and includes a stock exchange.

01.07.2020
Mr. Vishal Vijay Shah (Noticee) in the matter of Maharashtra Polybutenes Limited v. SEBI
Securities Appellate Tribunal

Facts of the Case:

In the facts of the instant proceedings, it is observed that the Vishal Vijay Shah (“Noticee”),
a registered Stock Broker had received funds in the client and settlement bank accounts from
third parties in cash and had made payments to third parties on behalf of clients. It is further
observed that the Noticee had also made withdrawal of cash from the client bank accounts.

Under the SEBI Circulars, a responsibility has been cast on the Stock Broker to ensure that
payments are received directly from the respective clients and not from third parties.

Accordingly, the Noticee should have taken expedient steps to ensure that funds received from
third parties are exceptionally dealt with and suitable explanations should have been asked
from the client when such blatant third party monetary amounts were received.

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However, there is nothing on record to suggest that such steps were indeed taken.

Further, the Noticee in its submissions has itself admitted to having carried out such irregular
practices. The aforementioned conduct of the Noticee clearly demonstrates that it failed to
maintain fairness in the conduct of its business, exercise due skill and care and comply with
the statutory requirements. Thus, in addition to the violation of the SEBI Circulars the Noticee
has also violated the provisions of Clauses A(1), (2) & (5) of the Code of Conduct as specified
under Schedule II read with Regulation 9(f) of the Stock Brokers Regulations.

The BSE had earlier conducted inspection of the Noticee and upon a consideration of the BSE
Inspection Reports in light of the Inspection Report, it is observed that the violations committed
by the Noticee in the instant proceedings are repetitive in nature. Further, it is a well settled
position of law that SEBI may initiate multiple proceedings for the same set of violations.

Order:
The Noticee had violated the aforementioned provisions of the Stock Brokers Regulations and
aforementioned SEBI Circulars. Having regard to the facts and circumstances of the instant
proceedings, SEBI accepted the recommendation of the Designated Authority that the
Certificate of Registration of the Noticee be suspended for a period of one year.

29.05.2020
Arihant Capital Markets Ltd. (Noticee) vs. SEBI Adjudicating Officer, Securities Exchange
Board of India

SEBI imposed penalty for the alleged violation of the provisions of SEBI (Stock Broker and
Sub Brokers) Regulations, 1992.

Facts of the case:

SEBI conducted investigation into trading activities of certain entities in the scrip of Moryo
Industries Ltd. for the period of January 15, 2013 to August 31, 2014. Based on the findings
of the investigation, SEBI initiated adjudication proceedings against Arihant Capital Markets

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Ltd. (hereinafter be referred to as, the “Noticee”) under Section 15HB of the Securities and
Exchange Board of India Act, 1992, for the alleged violation of Clause A(2) of the Code of
Conduct for Stock Brokers as specified under Schedule II read with Regulation 7 (as existed at
the relevant time) of the Securities and Exchange Board of India (Stock Broker and Sub
Brokers) Regulations, 1992.

Order:
In view of the above, after considering all the facts and circumstances of the case and
exercising the powers conferred upon SEBI under Section 15-I (2) of the SEBI Act, 1992 read
with Rule 5 of the Adjudication Rules, SEBI hereby impose monetary penalty of Rs.5,00,000/-
(Rupees Five Lakhs only) on the Noticee. The Noticee shall remit / pay the said amount of
penalty within 45 days of receipt of this order or May 31, whichever is later.

28.04.2022
AmrapaliAadya Trading & Investment Pvt. Ltd & Ors (Noticees) vs. SEBI
Adjudicating Officer, Securities and Exchange Board of India

Facts of the Case:

SEBI conducted an investigation in the matter for the investigation period April 01, 2011 to
March 31, 2017. On completion of investigation, it was observed that the Noticees have allegedly
been found indulged in following:
a. Non-submission of information sought through summons.
b. Siphoning of clients’ funds/ securities.
c. Non segregation & Mis-utilisation of client’s securities and funds.
d. Mis-used the client’s securities by pledging/transferring the same.
e. Routing/ Diversion of Clients’ funds.
f. Running fixed return scheme for some of its clients.
g. Selling of client’s securities from the employee’s account.
h. Moving funds and securities to its sister concern and transferring funds from business bank
account of the Noticee to its related/ group entities.
i. Non-disclosure of demat accounts to NSE.
j. Failed to carry out running account settlement.

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In view of same, it was alleged that the Noticees have violated various provisions of the SEBI
Act, Securities Contracts (Regulation) Rules, 1957, SEBI (Stock Brokers) Regulations, 1992 and
circulars issued by SEBI from time to time.

SEBI Order:
SEBI of considered view that the Noticees have violated various provisions of SEBI Act, SCRA,
Rules and Regulation made and various circulars issued thereunder and thus imposed penalties
totaling Rs 29 crore on nine entities, including AmrapaliAadya Trading & Investment Pvt. Ltd.
and Aadya Commodities Pvt. Ltd. It was held that any omission on part of the registered
intermediary is detrimental to the interest of investors in securities market.

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CHAPTER 11 – LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS

04.03.2020
Picturehouse Media Ltd. vs. Bombay Stock Exchange Ltd.
Securities Appellate Tribunal

Penalty imposed for non-compliance of SEBI LODR Regulations on delay appointment of

women director

The provisions of the LODR regulations require that every listed company should have a women
director. The appellant hereby is a public listed company and one women director resigned and
consequently the post became vacant which was require to be filled up by another woman
under the LODR Regulations. Since there was a delay in appointing a woman director of the
company, the penalty was imposed by BSE under LODR Regulations. The appellant has filed
the appeal against the order passed by BSE imposing a penalty of Rs.7,59,920/- for violation
of Regulations 17(1) and 19(1) and 19(2) of SEBI LODR Regulations, 2015. In the light of
default committed by the appellant SAT did not find any error in the impugned order and
dismissed the appeal.

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CHAPTER 12 – ACQUISITION OF SHARES AND TAKEOVERS – CONCEPTS

16.03.2020
G P Shah Investment Private Limited & Ors. (Appellant) vs. SEBI (Respondent)
Securities Appellate Tribunal

Facts of the case:

The present appeal has been filed against the order of the Adjudicating Officer, SEBI dated
March 13, 2019 imposing a penalty of 5 crores to be paid by the appellants jointly and severally,
under Section 15H (ii) of the SEBI Act, 1992 for violation of Regulation 3(2) of the SEBI
(Substantial Acquisition of Shares and Takeover) Regulations, 2011 (“SAST Regulations, 2011”
for convenience). This Tribunal held that the date on which the appellants acquired the shares
triggered the provisions of Regulation 3(2) of the SAST Regulations, 2011 and consequently
incurred an obligation to make a combined public announcement of an open offer for acquiring
the shares of the target company.

Order:
SAT finds that no relief can be granted to the appellants as AO granted several opportunities
but the appellants chose not to appear or file any reply. In the light of the aforesaid, SAT are
of the opinion that sufficient opportunity was given to the appellants to contest the matter
which they failed to do so. Thus, remanding the matter back to the AO in the given
circumstances does not arise. With regard to the quantum of penalty, SAT finds that the order
of the Whole Time Member (WTM) directing the appellants to make a public announcement
was issued as far back as on July 08, 2013 which after 7 years has not as yet been complied
with. Considering the aforesaid and the admitted violations, SAT did not find any error in the
imposition of penalty imposed by the AO though, under Section 15HB a maximum penalty of `
25 crores or three times the amount of profits could have been imposed. In view of the
aforesaid, SAT do not find any merit in the appeal and the same is dismissed with no order
as to costs.

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07.07.2020
M/s Sungold Capital Limited vs. SEBI Whole Time Member, Securities and Exchange Board
of India

One of the principles underlying under SAST Regulations is exit opportunity to the public
shareholders of the Target Company at the best price and accordingly, the provisions of SAST
Regulations deals with offer price, that offer price in an open offer highest of the prices of
shares of the Target Company derived through various methods.

Facts of the case:

The respective acquirers/PAC’s after acquiring shares/voting rights of Sungold Capital Limited
(“Target Company”) beyond the threshold of initial/creeping acquisition have failed to make
an open offer in terms of Regulation 10 and 11(1) of SAST Regulations, 1997, on, April 1, 2007
and September 14, 2007, respectively. As per Regulation 21(19) of SAST Regulations, 1997, the
acquirer and the PAC’s were jointly and severally liable for discharge of obligations under SAST
Regulations, 1997.

SAST Regulations, 1997 has been repealed by Regulation 35(1) of SAST Regulations, 2011 and
has been replaced by SAST Regulations, 2011. Regulation 35(2)(b) of SAST Regulations,
2011, provides that all obligations incurred under the SAST Regulations, 1997, including the
obligation to make an open offer, shall remain unaffected as if the repealed regulations has
never been repealed.

Therefore, the obligations to make open offer, incurred by the acquirers/PAC’s under SAST
Regulations, 1997, are saved and can be enforced against them by virtue of Regulation 35 of
SAST Regulations, 2011.

Order:
SEBI directed acquirers/PAC’s of the target company to make a public announcement of a
combined open offer for acquiring shares of Sungold Capital Ltd., under Regulation 10 and

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11(1) of the SAST Regulations, 1997, within a period of 45 days from the date when this order
comes into force, in accordance with SAST Regulations, 1997. The acquirers/PAC’s shall along
with the offer price, pay interest at the rate of 10% per annum for delay in making of open
offer, for the period starting from the date when the Notices incurred the liability to make
the public announcement and till the date of payment of consideration, to the shareholders
who were holding shares in the Target Company on the date of violation and whose shares are
accepted in the open offer, after adjustment of dividend paid, if any.

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17.03.2020
Susheel Somani & Ors. (Appellant) vs. SEBI (Respondent)
Securities Appellate Tribunal

Penalty imposed by SEBI on violating SAST Regulations, further reduced by SAT considering it
a technical breach Facts of the case: Aggrieved by the order of the Adjudicating Officer of the
respondent SEBI dated December 27, 2017 imposing a penalty of Rs. 15 lacs for violation of
provisions of public announcement of an open offer under Regulation 3(2) read with Regulation
13(1) of the SEBI (SAST) Regulations, 2011, the present appeal is preferred. The appellants
contended before the AO that there was no violation of Regulation 3(2) read with Regulation
13(1) of the SAST Regulations, 2011 since the transfer was inter se between the promoters,
the same was exempted from making a public announcement as provided by Regulation 10 of
the SAST Regulations. As regard the exemption, the AO found that while Regulation 10 of the
SAST Regulations provides for making disclosures to the stock exchanges and to the company
within a period of two working days. In the present case, the appellants made the disclosures
on 7th day as against the provisions of Regulation 29(3).

[Reg. 29(3) - the disclosures are required to be made within two working days]

Thus, technically the appellants were not exempted from making public announcement and,
thus, are in violation of the relevant regulations. The AO has observed that as the condition of
making disclosures within two working days is not fulfilled, the act was not fit for grant of
exemption. In the circumstances, the penalty was imposed. The appellants made the disclosures
though belatedly after five days as required by Regulation 29 of the SAST Regulations. Thus,
it was a technical breach and, therefore, AO instead of imposing a penalty of Rs. 15 lacs,
imposed a penalty of Rs. 5 lacs which would have been just and sufficient.

The appeal was partly allowed.

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07.09.2017
Mega Resources Ltd. (Appellant) vs. SEBI (Respondent)
Securities Appellate Tribunal

Ignorance of law will not excuse the appellant to escape the liability of violating the law

Facts of the case:

The Appellant, Mega Resources Limited, is aggrieved by the order dated 13.08.2014 passed by
the Adjudicating Officer, SEBI imposing a penalty of Rs. 2,00,000/- under Section 15A(b) of
the SEBI Act and Rs. 50,00,000/- under Section 15 H(ii) of the SEBI Act for failure on the
part of the appellant to comply with the provisions of Regulation 7(1) read with Regulation
7(2) and Regulation 11(1) read with Regulation 14(1) of the SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997.

The appellant has admitted that pursuant to the acquisition of 25000 equity shares through
off market transactions the shareholding of the Promoters/Promoter Group of the Company
had increased from 50.46% to 60.46% of the Target Company.

This triggered Regulation 11(1) of the erstwhile SAST Regulations along with the requirement
of submission of certain disclosures under Regulation 7(1) and 7(2) of the erstwhile
Regulations.

It is admitted by the appellant that the non-compliance with the disclosure requirements in
respect of acquisition of shares and failure to make an open offer to the shareholders of the
Company was due to lack of awareness of the erstwhile regulations on the part of the Appellant
and purely unintentional and without any malafide intentions.

However, It is trite law that ignorance of law will not excuse the appellant to escape the
liability of violating the law nor ever absolve the wrongdoer of his crime or misconduct.

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Further, the appellant contended that in the matter of imposition of penalty, the Section 15(H)
(ii) of the SEBI Act, 1992 was amended dated October 29, 2002 and the penalty for
nondisclosure of acquisition of shares and takeovers was enhanced from a maximum of Rs. Five
Lakh to Rs. Twenty Five crore.

It is argued that since the violation in Appeal was committed in February, 2001, the appellant
would be governed by the erstwhile provisions of Section 15H(ii) of the SEBI Act, which existed
on the date of violation in question.

Order:
It is true that the maximum monetary penalty imposable for non-disclosure of acquisition of
shares and takeovers under the erstwhile SEBI Act on the date of violation by the Appellant
was Rs. Five Lakh and by the amendment dated October 29, 2002 it is up to Rs. Twenty Five
Crore or three times of the amount of profits made out of such failure, whichever is higher.

However, the moot point in this connection to be noted is that as on October 29, 2002 the
obligation to make disclosure and public announcement under Regulations 7(1) read with 7(2)
and 11(1) read with 14(1) continued. Therefore, because the violation was continued even after
October 29, 2002, the appellant has been rightly imposed penalty under the amended provisions
of Section 15H (ii) of the SEBI Act.

Since the punishment imposable now for such nondisclosure and public announcement is up to
Rs. Twenty Five Crore, SAT finds that the penalty of Rs. Fifty Lakh is just and reasonable and
not disproportionate. The contention of the appellant in this regard is, therefore, liable to be
turned down.

Therefore, in the peculiarity of the facts and circumstances of the case and, in particular, the
continuity of the obligation to make disclosure and public announcement, the penalty of Rs.
Fifty Lakh is upheld and the appeal is dismissed.

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08.07.2010
M/S Daiichi Sankyo Company vs. Jayaram Chigurupati & Ors.

Supreme Court held that:

What does the deeming provision do? The deeming provision simply says that in case of
specified kinds of relationships, in each category, the person paired with the other would be
deemed to be acting in concert with him/it. What it means is that if one partner in the pair
makes or agrees to make substantial acquisition of shares etc. in a company it would be
presumed that he/it was acting in pursuance of a common objective or purpose shared with
the other partner of the pair. For example, if a company or its holding company makes or
agrees to make a move for substantial acquisition of shares etc. of a certain target company
then it would be presumed that the move is in pursuance of a common objective and purpose
jointly shared by the holding company and the subsidiary company. But the mere fact that
two companies are in the relationship of a holding company and a subsidiary company, without
anything else, is not sufficient to comprise “persons acting in concert”. Something more is
required to comprise “persons acting in concert” than the mere relationship of a holding
company and a subsidiary company.

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CHAPTER 13 – PROHIBITION OF INSIDER TRADING

12.02.2020
Shruti Vora (Appellant) vs. SEBI (Respondent)
Securities Appellate Tribunal

No duty cast upon the Adjudicating Officer to disclose or provide all the documents which
are not relied upon while issuing Show Cause Notice

Appellant (Shruti Vohra) requested to the respondent (SEBI) to be allowed for the full
inspection of other documents obtained during the investigation of the appellant and copies be
supplied thereof. According to appellant, the inspection of the documents was only confined to
the show cause notice and documents relied upon in the show cause notice. The core issue is
whether the appellant is entitled for inspection and for supply of all the documents in
possession of the adjudicating authority including those documents upon which no reliance has
been placed by the Adjudicating Officer (AO) of the SEBI in the show cause notice. SAT
observed that Rule 4 of Securities and Exchange Board of India (Procedure for Holding Inquiry
and Imposing Penalties by 9 Adjudicating Officer) Rules, 1995 does not provide any specific
provision requiring the AO to supply copies of any documents along with the show cause notice
nor requires the AO to furnish any list of documents upon which reliance has been placed by
it. However, the principles of natural justice and doctrine of fair play requires the AO to supply
the documents upon which reliance has been placed at the stage of show cause notice. Hence,
there is no duty cast upon the AO to disclose or provide all the documents in his possession
especially when such documents are not being relied upon.

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16.06.2020
Aditya Omprakash Gaggar (Noticee) vs. SEBI Adjudicating Officer, Securities Exchange
Board of India

Acts such as making UPSI available on a discriminatory basis will compromise the
confidence of investors and has a serious impact on the price of the securities.

Facts of the case:

During November 2017, there were certain articles published in newspapers / print media
referring to the circulation of Unpublished Price Sensitive Information (hereinafter referred to
as “UPSI”) in various private WhatsApp groups about certain companies ahead of their official
announcements to the respective Stock Exchanges. Against this backdrop, SEBI initiated a
preliminary examination in the matter of circulation of UPSI through WhatsApp groups during
which search and seizure operation for 26 entities of Market Chatter WhatsApp Group were
conducted and approximately 190 devices, records etc., were seized. The WhatsApp chats
extracted from the seized devices were examined further and while examining the chats, it was
found that in respect of around 12 companies whose earnings data and other financial
information got leaked in WhatsApp.

Accordingly, SEBI carried out an investigation in the matter of circulation of UPSI through
WhatsApp messages with respect to Bata Ltd., to ascertain any possible violation of the
provisions of the Securities and Exchange Board of India Act, 1992 and SEBI (Prohibition of
Insider Trading) Regulations, 2015 during the period of January 1, 2016 to February 10, 2016.
It was observed that Bata India Ltd. had announced financial results for quarter and nine
months ended on December 31, 2015 on February 10, 2016. The investigation inter alia revealed
that Mr. Aditya Omprakash Gaggar (hereinafter also referred to as “Noticee”) among other
had communicated the UPSI related to Bata India Ltd. viz; Sales, PAT and EBITDA for quarter
ended December 2015 through WhatsApp messages from the WhatsApp chat of Ms. Shruti
Vora.

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Order:
The instant case before SEBI is one such example where the information constituting UPSI
has been circulated through WhatsApp messages, which conveniently wipes out any trace of
the insider leaking the UPSI when the messages are deleted and manages to reach the selected
group of targets. Such acts which are essentially in the form of making UPSI available on a
discriminatory basis, if legitimized in the garb of routine sharing of market gossips/rumors will
compromise the confidence of investors and the activity of such kind has a serious impact on
the price of the securities where the limited set of people having access to UPSI stand to gain
at the expense of the innocent gullible investors. SEBI in the opinion that the peculiar nature
of such communication of UPSI as in the instant case has to be strictly dealt with, in order
to curb and discourage any future attempts at the same.

Thus, SEBI imposed a penalty of ₹15,00,000/- (Rupees Fifteen Lakhs only) on the Noticee
viz., Mr. Aditya Omprakash Gaggar in terms of the provisions of Section 15G of the Securities
and Exchange Board of India Act, 1992 for the violation of Sections 12 A (d) & 12 A (e) of
the Securities and Exchange Board of India Act, 1992 and Regulation 3 (1) of SEBI (Prohibition
of Insider Trading) Regulations, 2015. The Noticee shall remit / pay the said amount of penalty
within 45 days of the receipt of this order.

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16.07.2020
Mr. B Renganathan (‘Noticee’) in the matter of Edelweiss Financial Services Ltd. vs. SEBI
Adjudicating Officer, Securities and Exchange Board of India

Compliance officers are expected to discharge a responsible role in the corporate

functioning. The standards of good compliance aid and build up good corporate governance
to add value and confidence to the market and its investors.

SEBI, upon receipt of examination report from National Stock Exchange (NSE), conducted
investigation in the dealings in the scrip of Edelweiss Financial Services Ltd.
(‘EFSL’/‘Company’) to examine the violation, if any, of the provisions of SEBI (Prohibition of
Insider Trading) Regulations, 2015 (‘PIT Regulations, 2015’) for the period of January 25, 2017
to April 05, 2017 (‘Investigation Period’/‘IP’).

The Company is listed on NSE and Bombay Stock Exchange (BSE). It is observed that Mr. B
Renganathan (‘Noticee’) was the compliance officer and Company Secretary of EFSL during
IP. During the course of investigation, it was observed by SEBI that Ecap Equities Limited
(‘Ecap’), a wholly owned subsidiary of EFSL, had acquired Alternative Investment Market
Advisors Private Limited (‘AIMIN’), a fintech company, on April 05, 2017 by entering into a
share purchase agreement (SPA). The same was disclosed by EFSL to NSE and BSE on the
same day. Further, a Term Sheet in respect of the said transaction was signed between Ecap
and AIMIN on January 25, 2017.

Therefore, it was alleged that the acquisition of AIMIN by Ecap was a price sensitive information
which had come into existence on January 25, 2017 upon signing of Term Sheet. Despite that,
the Noticee, being the compliance officer of the company, failed to close the trading window
during the period of January 25, 2017 to April 05, 2017. By his failure to close the trading
window during this period, it is alleged that the Noticee has violated the provisions of Clause
4 of Minimum Standards for Code of Conduct to Regulate, Monitor and Report Trading by
Insiders mentioned in Schedule B read with Regulation 9(1) of PIT Regulations, 2015. In view

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of this, adjudication proceedings were initiated against the Noticee under the provisions of
section 15HB of the ‘SEBI Act’.

Order:
Adjudicating Officer, SEBI find non-compliance on the part of the Noticee by failing to close
trading windows when necessary as per law. Therefore, there were repeated instances wherein
the Noticee had failed to close the trading window. In view of the above the argument of the
Noticee that there was no repetition of violation is not acceptable. Adjudicating Officer’s
considered view that a repetitive violation, in disregard to the applicable provisions of law,
cannot be construed to be a technical violation.

After taking into consideration the facts and circumstances of the case, material/facts on
record, the reply submitted by the Noticee, Adjudicating Officer imposed a penalty of Rs.
5,00,000/- (Rupees Five Lakh only) on the Noticee. The Noticee shall remit / pay the said
amount of penalty within 45 days of receipt of this order.

Extracts from SAT Order dated 12th July 2019 in the matter of Mr. G. Bala Reddy vs. SEBI

In this case, a Company had secured work orders but the same were not disclosed to stock
exchange as the contract was not yet issued to the Company and the Company was only found
to be the lowest price bidder. During this period, certain entities had dealt in the shares of
this Company with a contention that being the lowest bidder of a contract is a usual course
of business and hence, does not amount to UPSI. SAT held that considering that the promoter
was aware that the Company was L1 (lowest bidder), this information was UPSI and hence it
was incumbent upon Promoters not to deal in the scrips of the Company directly or indirectly.

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15.02.2021
Mr. Prannoy Roy vs. Securities and Exchange Board of India (SEBI)
Supreme Court of India

The appeals will be heard by the SAT without insisting on deposit of half the amount of
fines as a precondition for hearing appeals.

Background / Facts of the Case:

SEBI conducted an investigation into the suspected insider trading in the scrip of NDTV
(hereinafter referred to as “the Company”) during the period starting from September 01, 2006
to June 30, 2008 (hereinafter referred to as “Investigation Period”).

While the investigation conducted into the matter, inter alia, revealed that Mr. Sanjay Dutt
and his associated entities had indulged in insider trading in the scrip of NDTV (for which
separate proceedings have been initiated) at the same time, the investigation also concurrently
detected that Mr. Prannoy Roy and Mrs. Radhika Roy have carried out insider trading in the
scrip of NDTV during the Investigation Period.

Mr. Prannoy Roy and Mrs. Radhika Roy had together bought 48,35,850 NDTV shares on
December 26, 2007 at the rate of `400 per share. Subsequently, Mr. Prannoy Roy and Mrs.
Radhika Roy had sold 24,10,417 and 25,03,259 shares respectively on April 17, 2008 at 10:26:42
at the rate of `435.10 per share. The trading in the shares of NDTV was done by Mr. Prannoy
Roy and Mrs. Radhika Roy while in possession of UPSI (purchase on December 26, 2007) and
within 24 hours of disclosing the price sensitive information to the stock exchanges (sale on
April 17, 2008), during the period when the trading window for them was closed, thereby
making a wrongful gain of `16,97,38,335/-

The gain made by Mr. Prannoy Roy and Mrs. Radhika Roy on the total number of shares jointly
purchased by them during the UPSI period has been determined as below:

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Name Buy Quantity Gain (`)

Actual sell Actual buy
during UPSI #
price on April price on
period
17, December 26,
pertaining to
2008 (`) 2007 (`)
PSI-6*

Prannoy Roy A B C (B-C)xA

and
4835850 435.1 400 169738335
Radhika Roy

*Price Sensitive Information (PSI) - 6: The Board of the Company decided to evaluate options
for reorganization of the Company, which could include de-merger/ split of the Company into
News related businesses and investments in ‘Beyond News’ businesses which are currently held
through its subsidiary, NDTV Networks Plc.

Therefore, by making the aforesaid sales of Company’s shares held by them, Mr. Prannoy Roy
and Mrs. Radhika Roy have together received a gain of `16.97 crores for themselves.

Alleged violations
Mr. Prannoy Roy and Mrs. Radhika Roy, being the “insiders” with respect to NDTV in terms
of regulation 2(e) of the PIT Regulations, 1992, have traded in NDTV shares during UPSI period
pertaining to PSI-6, while in possession of the UPSI. Regulation 3(i) of the PIT Regulations,
1992, inter alia, prohibits an insider, either on his own behalf or on behalf of any other person,
from dealing in securities of a company listed on any stock exchange when he is in possession
of any UPSI.

Further, in terms of regulation 4 of the PIT Regulations, 1992, any insider who deals in securities
in contravention of regulation 3 is said to be guilty of insider trading. In view of the aforesaid
discussions and factual findings, SEBI found that, in the instant case, Mr. Prannoy Roy and
Mrs. Radhika Roy, by dealing in shares of NDTV on December 26, 2007, while in possession of

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unpublished price sensitive information (PSI- 6), have violated the provisions of section 12A(d),
(e) of the SEBI Act, 1992 read with regulation 3(i) and regulation 4 of the PIT Regulations,
1992.

The PIT Regulations, 1992, have been repealed by the SEBI (Prohibition of Insider Trading)
Regulations, 2015. As per Regulation 12 of the SEBI (Prohibition of Insider Trading) Regulations,
2015, any proceedings initiated for contraventions of provisions of the PIT Regulations, 1992
are saved and, hence, can be proceeded with under the said PIT Regulations, 1992.

SEBI Order:
Mr. Prannoy Roy and Mrs. Radhika Roy had made a wrongful gain of `16,97,38,335 while trading
in the shares of the Company. The gains made by them have been calculated as the difference
between actual sell price (i.e., `435.1) received and actual buy price (i.e., `400) of 4835850
shares of NDTV incurred by them.

In order to protect the interest of investors and the integrity of the securities market, SEBI,
in exercise of its powers conferred under section 19 of the SEBI Act, 1992, read with section
11, 11(4) and 11B of the SEBI Act, 1992, issued the following directions:

(a) Mr. Prannoy Roy and Mrs. Radhika Roy, jointly or severally, disgorge the amount of wrongful
gain of `16,97,38,335/-, along with interest at the rate of 6% per annum from April 17, 2008,
till the date of actual payment of disgorgement amount along with interest, within 45 days
from the date of coming into force of this order.
(b) Mr. Prannoy Roy and Mrs. Radhika Roy shall be restrained from accessing the securities
market and further prohibited them from buying, selling or otherwise dealing in securities,
directly or indirectly, or being associated with the securities market in any manner, whatsoever,
for a period of 2 years.

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Appeal to SAT:
Mr. Prannoy Roy and Mrs. Radhika Roy filed an appeal against the SEBI’s order dated November
27, 2020 whereby SEBI had barred them from the securities market for two years and also
directed them to disgorge illegal gains of ` 16.97 crore for indulging in insider trading more
than 12 years ago.

SAT ORDER:
SAT has directed NDTV’s promoters Prannoy Roy and Radhika Roy to deposit 50 per cent of
the disgorged amount before SEBI within four weeks. If NDTV deposits the amount, the balance
amount will not be recovered during the pendency of the appeal before SAT.

Supreme Court Order:

A bench headed by Chief Justice S A Bobde directed that appeals of the appellants shall be
heard by the Securities Appellate Tribunal (SAT) at Mumbai without insisting on any deposit
of amount.

Further, the Hon’ble Supreme Court vide its order dated February 15, 2021 exempted Prannoy
Roy and Radhika Roy from making deposit before the SAT for hearing their appeals. The Hon’ble
Supreme Court directed that “no amount shall be coercively recovered from the appellants
(Prannoy Roy and Radhika Roy) for hearing the case”.

Extracts from SEBI’s Interpretive Letter dated 19th July, 2018 issued under the SEbI
(Informal guidance) Scheme, 2003 in the matter of Hawkins Cookers Ltd. (HCL) regarding
sale of shares by an Independent Director.

Facts of the case:

a) One of the company’s independent directors wants to sell his equity shares of the company.
b) The sale shall be done as per a trading plan in accordance with regulation 4(iii) of the
SEBI (PIT) Regulations, 2015.

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c) As per para 8 of Schedule B to the PIT Regulations, while applying for preclearance, the
said director will have to submit an undertaking to the company to the effect that he is not
in possession of any Unpublished Price Sensitive Information (UPSI).
d) By virtue of participation in the Board meetings and access to the information that is
shared at such meetings, the said director is deemed to be perpetually in possession of UPSI.
Therefore, the said undertaking is not possible.

Question: a) Whether the said director may submit a trading plan as required for a plan to
trade shares above INR 20 lakh in value and proceed with executing the same without giving
the said undertaking. 358 Prohibition of Insider Trading LESSON 13
b) What procedure should be followed by the company and/ or the said director such that the
said director may lawfully execute the trade?

Guidance from SEBI:

a) Regulation 5 of the PIT Regulations provides exception to the general rule that prohibits
trading by insiders when in possession of UPSI. Further, regulation 5, inter alia, states that
the trading plan shall be approved by the compliance officer and shall not entail trading in
securities for market abuse. In this regard, regulation 5 (3) especially states that the
compliance officer shall review the trading plan to assess whether the plan would have any
potential for violation of PIT Regulations and shall be entitled to seek such express undertakings
as may be necessary to enable such assessment and to approve and monitor the implementation
of the plan.

b) In the absence of an approved trading plan, designated persons are subject to the
requirements of code of conduct formulated by the company in terms of regulation 9 read with
schedule B to the PIT Regulations.

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April 19, 2022

Balram Garg and Ms. Shivani Gupta & Ors. (Appellants) vs. Securities and Exchange Board
of India (Respondent) Supreme Court of India

Insider Trading cannot be presumed due to proximity between the parties.

Brief Facts of the Case:

P. Chand Jeweller Pvt. Ltd. was incorporated on April 13, 2005 under the Companies Act, 1956
as a Private Limited Company. However, pursuant to a resolution passed by the shareholders
on July 5, 2011, the company was converted into a Public Limited Company, following which
the name of the company was changed to “PC Jeweller Ltd.” (“PCJ”).

SEBI vide its impounding order dated 17.12.2019 and a show-cause notice dated 24.04.2020
alleged that the Padam Chand Gupta (P.C. Gupta) was the Chairman of PCJ during the
relevant period and was a “connected person” in terms of Regulation 2(1)(d)(i) and an
“insider” under Regulation 2(1)(g) of the SEBI (Prevention of Insider Trading Regulations),
2015 ( “PIT Regulations”).

Balram Garg, who is the brother of P.C. Gupta and the Managing Director of PCJ is also a
“connected person” in terms of Regulation 2(1)(d)(i) and an “insider” under Regulation
2(1)(g) of the PIT Regulations.

Sachin Gupta and Smt. Shivani Gupta (son and daughter-in-law of Balram Garg’s deceased
brother late P.C. Gupta) and Amit Garg (son of Amar Garg, who was also the brother of
Balram Garg) traded on the basis of Unpublished Price Sensitive Information (“UPSI”) received
by them on account of their alleged proximity to P.C. Gupta and Balram Garg between the
period from 01.04.2018 to 31.07.2018.

It was also alleged that all the appellants shared the same residence.

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Aggrieved by the order of SEBI, the Appellants filed appeals before the Securities Appellate
Tribunal (“SAT”) and the Tribunal, vide its order dated 21.10.2021, dismissed the Appeals
preferred by the Appellants

Supreme Court Judgment:

Supreme Court allowed the appeals and set aside the final orders of Whole Time Member and
SAT. It was held that in the absence of any material available on record to show frequent
communication between the parties, there could not have been a presumption of communication
of UPSI by the appellant Balram Garg. The trading pattern of the appellants cannot be the
circumstantial evidence to prove the communication of UPSI by the appellant Balram Garg to
the other appellants. Regulation 3 of the PIT Regulations, which deals with communication of
UPSI, does not create a deeming fiction in law. Hence, it is only through producing cogent
materials (letters, emails, witnesses etc.) that the said communication of UPSI could be proved
and not by deeming the communication to have happened owing to the alleged proximity
between the parties.

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CHAPTER 14 – PROHIBITION OF FRAUDULENT AND UNFAIR TRADE

PRACTICES RELATING TO SECURITIES MARKET

05.01.2021
SEBI (Appellant) vs. Bharti Goyal etc. (Respondent)
The Supreme Court of India

The direction for substituting the penalty which has been imposed under Section 15HA of
SEBI Act, 1992 with a warning is contrary to the statutory provisions.

Background/ Facts of the Case:

The SEBI conducted an investigation in the matter of Mapro Industries Limited (Mapro/MIL)
during July 1, 2014 to November 30, 2014 (investigation period) and the possible violation of
Regulations 3(a), (b), (c) & (d), 4(1), 4(2) (a) and (e) of SEBI (Prohibition of Fraudulent
and Unfair Trade Practices ) Regulations, 2003 by the Noticees (total 16 entities).

SEBI had initiated investigation against sixteen entities, including the appellant, for
manipulating the price of the scrip of Mapro Industries Limited (Mapro), a listed company, by
trading above the last traded price (LTP) and violating various provisions of the SEBI (PFUTP)
Regulations, 2003. While six of the entities which had engaged in market manipulation were
suspected to be related entities, the appellants were part of the other ten entities which were
not shown to be connected to these related entities.

Alleged violations
It was alleged that during this period the price of the scrip was raised from Rs.79.15 on July
1, 2014 to a high of Rs.493.40 on November 10, 2014 and thereafter closing at Rs.430 on
November 28, 2014. Though only six entities were found to be suspected group entities the
scope of the investigation was expanded to another ten entities who were found to be part of

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the top traders during the investigation period. What is held in the impugned order is that
though there is no connection/relationship of these ten entities to the six suspected entities
by the very manipulative nature of their trades such as placing buy orders mostly at the
beginning of trading hours and substantively above the Last Traded Price (LTP) they have
manipulated the trading system and disturbed the market equilibrium in the scrip of Mapro.

Together these ten entities raised the price of the scrip by Rs.241.95 by trading a total quantity
of 1174 shares in 43 trades. It was also held in the impugned order that the contribution of
these ten entities was about 69% of the total net LTP which was achieved in 29 trades with
a total quantity of just 234 shares.

SEBI Findings
The SEBI observed that they had executed 120 trades as buyers and out of which their 22
trades contributed to positive LTP of Rs. 139.95 which was 18.07% of market positive LTP. On
further analysis of said 22 trades, it was observed that buy orders were placed first in 14
trades and LTP contribution of such trades were Rs. 88.95 which was 11.48% of the total
positive market LTP.

SEBI, from the trading pattern of the entities, noted that the entities manipulated the share
price of the company by contributing positively to the LTP (last traded price) which
consequently led to the rise in the price of the scrip.

SEBI found that the trades done by the Noticees are in violation thus liable for monetary
penalty under Section 15HA of SEBI Act for violation of Regulations3(a), (b), (c) & (d), 4(1),
4(2) (a) and (e) of SEBI PFUTP Regulations, 2003. Without delving into the aspect of
connection between the appellants and the connected/ suspected entities, SEBI held that by
the very nature of their trades, the appellants manipulated the scrip price and disturbed the
market equilibrium.

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SEBI Order
SEBI imposed a penalty of Rs. 5,00,000 each on 10 individuals and six entities under Section
15 HA of the SEBI Act, 1992 for violating the Regulations 3(a), (b), (c) & (d), 4(1), 4(2)
(a) and (e) of SEBI PFUTP Regulations, 2003.

Appeal before Securities Appellate Tribunal (SAT)

Bharti Goyal, one of the individual one which fine was imposed, has filed an appeal before SAT.
Ms. Bharti Goyal, appeared in person during hearing and contended that she invested in the
shares of Mapro in the normal course of business as she is a small-time trader though not
frequent and there is no connection or relationship with any connected/suspected entity and
finally lost money in this investment.

The learned counsel for the Respondent in Appeal contended that placing buy orders well above
the LTP is completely irrational as no rational investor would like to buy shares at a price
substantially higher than the LTP.

While the trading pattern of Appellant; placing the buy orders for generally very small number
of shares and the timing of the orders; all point towards possible violation of the provisions of
PFUTP Regulations it is also possible that an investor through a thorough observation of the
movement of the scrip could be placing orders in the system without any intention to
manipulate the market. Since the dividing line is very thin and blurred distinguishing both
these categories is a difficult, if not impossible, task.

SAT Order dated August 25, 2020

The SAT modified the penalty order imposed by SEBI for the manipulation in the scrip price
of a listed entity into a warning, on account of non-establishment of a connection between
the appellants and the connected/ suspected entities that are alleged to have manipulated the
price.

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SEBI Appeal before Supreme Court of India

SEBI filed appeal before Supreme Court of India. Mr. K K Venugopal, learned Attorney General
for India, (from Appellant side) submitted that Section 15HA of the Securities and Exchange
Board of India Act 1992, as amended on 8 September 2014, provides for a minimum penalty
of Rs. 5,00,000 which can go up to Rs. 25 crores. Hence, the imposition of a warning which is
not a penalty contemplated by section 15 HA is beyond jurisdiction. It has been submitted
that similar orders have been passed by SAT in many other cases, leading to several appeals
being filed before this Court by SEBI.

Supreme Court of India Order dated 05.01.2021

Prima facie, the direction for substituting the penalty which has been imposed under Section
15HA with a warning is contrary to the statutory provisions. The SAT is not exercising the
jurisdiction under Article 226 of the Constitution and is a creature of the statute. Even the
jurisdiction under Article 226 has to be exercised in a manner consistent with law. Hence,
there shall be a stay of the operation of the impugned judgment and order of the SAT dated
25 August 2020.

01.01.2021
Order In the matter of Reliance Petroleum Limited (now known as Reliance Industries
Limited) Adjudication Officer, SEBI

The positions taken by clients on behalf of principal which is not known to the trading
members or the market at large, will be treated as fraudulent and manipulative in nature.

Background
SEBI conducted an investigation into the trading in the scrip of Reliance Petroleum Limited
(now known as Reliance Industries Limited) for the period November 1, 2007 to November 29,
2007 ( ‘Investigation Period’/‘IP’). The SEBI observed that RIL had entered into a well-planned
operation with its Agents to corner the open interest in the RPL Futures and to earn undue
profits from the sale of RPL shares in both cash & futures segments and to dump large

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number of RPL shares in the cash segment during the last ten minutes of trading on the
settlement day resulting in a fall in the settlement price.

Facts of the Case

A resolution was passed by the Board of Directors of ‘Noticee-1’ (‘RIL’) on March 29, 2007
which inter-alia approved the operating plan for the year 2007-08 and resource requirements
for the next two years, i.e., approximately Rs. 87,000 crore. Thereafter, RIL decided to sell
approximately 5% of its shareholding in RPL (i.e., upto 22.5 crore RPL shares) in November
2007.

RIL admittedly appointed 12 agents, between 30th October, 2007 to 3rd November, 2007, to
undertake transactions in the November 2007 RPL Futures (settlement period 1st November -
29th November 2007) on its behalf.

The said Agents appointed by RIL took short positions in the F&O Segment on behalf of RIL,
while RIL undertook transactions in RPL shares in the cash segment. During the period of 1st
November 2007 to 29th November 2007, various transactions were undertaken by RIL in the
Cash Segment and by RIL through the Agents in the F&O Segment. From 15th November 2007
onwards, RIL’s short position in the F&O Segment constantly exceeded the proposed sale of
shares in the Cash Segment. On 29th November 2007, RIL sold a total of 2.25 crore shares
in the Cash Segment during the last 10 minutes of trading resulting in fall in the prices of
RPL shares, which also lowered the settlement price of RPL November Futures in the F&O
Segment. RIL’s entire outstanding position of 7.97 crores in the F&O Segment was cash settled
at this depressed settlement price resulting in profits on the said short positions. The said
profits were transferred by the agents to RIL as per a prior agreement.

As per SEBI’s order, RIL executed a well-planned scheme of manipulative trades in the Cash
Segment and the F&O Segment in Reliance Petroleum Limited shares. As a result of their
involvement in this scheme, these entities have violated the provisions of Regulations 3(a),
(b), (c), (d) and Regulations 4(1), 4(2) (d), (e) of SEBI (Prohibition of Fraudulent and

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Unfair Trade Practices relating to Securities Market) Regulations, 2003 and SEBI Circular no.
SMDRP/DC/CIR10/01 dated November 02, 2001.

Alleged Violations
During investigation, it was alleged that RIL manipulated the settlement price by placing huge
sell orders in the cash segment during the last ten minutes of trading on November 29, 2007
(the day of expiry of RPL November Futures contracts) which depressed the closing share
price of RPL, while simultaneously having large short position in RPL November futures through
its agents.
It was also alleged that Shri Mukesh D. Ambani (hereinafter referred to as ‘Noticee-2’), being
the Chairman & Managing Director of RIL, was responsible for its day-to-day affairs and
thereby, liable for the manipulative trading done by RIL.

SEBI Findings
Mr. Sandeep Agarwal was commonly authorized by the 12 Agents to place orders in the F&O
Segment, who was an employee of a wholly owned subsidiary of RIL. SEBI noted that the
orders were placed by the same person for all the entities and the entities were connected
directly or indirectly with RIL.

During the month of November 2007, the front entities of RIL had held a position which was
substantial compared to the maximum permissible limit, in accordance with NSE data.
These arrangements were entered with the intention to corner the F&O segment and were
therefore fraudulent and manipulative in nature. Agents of RIL had assumed individual positions
in the November 2007 futures of RPL, without disclosing their relationship with the principal,
i.e., RIL. The fact that the clients have been authorized by RIL to take separate and
independent position limits was not known to the trading members or the market at large.

SEBI Order
SEBI imposed a penalty of Rs. 40 crores on Reliance Industries Ltd (RIL) and its Chairman
& Managing Director, Mukesh Ambani and Rs.20 crores and Rs.10 crores on other two entities

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i.e. Navi Mumbai SEZ Pvt Ltd. and Mumbai SEZ Ltd respectively for alleged manipulation in
the trading of Reliance Petroleum Limited’s (now known as RIL) securities.

26.08.2021
Nishant Inbuild Limited (Noticee) In the matter of PMC Fincorp Ltd.
Adjudication Officer, SEBI

Creation of misleading appearance of trading and manipulation the price of the scrip by
contributing to the price rise to be treated as Unfair Trade Practice as per Securities and
Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to
Securities Market) Regulations, 2003

Facts of the Case

SEBI carried out an investigation in the matter of PMC Fincorp Ltd. wherein it was observed
that lots of buyers and sellers were trading in the scrip of PMC during the investigation period
of March 29, 2012 to March 31, 2015. The shares of company were listed on UP Stock Exchange
Ltd (UPSE) and subsequently got listed on Bombay Stock Exchange Ltd (BSE) on March 12,
2012. The investigation was carried out to ascertain the artificial demand in the scrip of PMC
during the IP by continuously buying shares at increasing prices and then holding on to the
shares purchased by Noticee and other entities, thereby also reducing the shares held by the
public and that their trades were manipulative in nature. The Investigation Period was divided
into five patches to identify the volume traded and fluctuation in prices.

Noticee along with connected entities as mentioned in the SEBI order contributed to high
trading volumes in Patch 3 and 4 which lead to fluctuate the price of the scrip of PMC Fincorp
Ltd. Further, Noticee and other entities namely Embassy, Economy, Seabird Retails, Seabird
Distributors and Seabird Vincon had fund transfers with PMC. On analysis of bank statements
of aforesaid entities, it was observed that PMC had transferred funds to aforesaid entities who
in turn transferred the aforesaid funds to their respective brokers for settlement of their
trading in the scrip of PMC.

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Alleged Violations
1. It was alleged that a group of 92 entities were found to be connected to one another on
the basis of fund transfers, off market transactions, common directors, same address etc. and
in common connection with Noticee by one or other way.
2. From the trading analysis of the Investigation Period, SEBI had observed that some of the
entities had traded among themselves and contributed to market +ve contribution.
3. Few of the entities were alleged to have aided 11other connected entities (buyers) by selling
shares to increase the price of the scrip.
4. It was alleged that the Noticee, along with the 33 connected entities created misleading
appearance of trading and manipulated the price of the scrip by contributing to the price rise
and have violated Section 12 A(a),(b),(c) of SEBI Act read with Regulation 3(a),(b),(c),(d)
and Regulation 4(1), 4(2) (a), (e) of PFUTP Regulations.

SEBI Findings
Noticee was involved in negative and positive LTP contribution both. From the volume traded
during the Investigation Period of Patch 3 (20/03/2013 to 12/03/2014) and Patch 4
(13/03/2014 to 21/10/2014), SEBI noted that the Noticee was a significant buyer in the PMC
scrip during Patches 3 and 4, and contributed to high trading volumes in Patch 3 and 4.
Amongst the connected entities it was the 9th largest trading entity, providing significant
liquidity in the scrip during Patches 3 and 4. The trading pattern of the Noticee thus establishes
that it contributed to trading volumes and provided liquidity.

Noticee was connected with other Entities

The Noticee, through its trades provided the necessary counterparties and liquidity required to
maintain volumes of trading in the scrip and enable the entities Economy, Embassy, Seabird
Distributors, Seabird Vincon, Seabird Retails, Famous, Rolex and Shivdarshan to continuously
buy in the scrip at increasing prices. Noticee also facilitated in fund transfers from PMC and
its promoter through loans directly or via Seabird Distributors which were uses to pay to the
brokers for some of its purchases.

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The SEBI found that Noticee had a close connection with the Embassy, Seabird Distributors,
Seabird Vincon, Economy, Seabird Retails, which have been found to have manipulated the price
of the scrip. Further, Noticee also had close connection with PMC and its promoters namely
Prabhat Management and RRP Management Services which have been found to be played a
part in funding or routing of funds to Economy, Embassy, Seabird Distributors, Seabird Vincon,
Seabird Retails.

Hence, Noticee contributed to significant trading volume in the scrip during patch 3 and 4 and
provided liquidity and was a counterparty to trades by aforesaid entities.

SEBI Order
SEBI imposed a penalty of Rs. 5 Lakh on Nishant Inbuild Limited.

02.09.2021
M/s Achal Investments Ltd. In the matter of Mis-utilization of funds raised through
preferential issue
Whole Time Member,SEBI

Mis-utilisation and diversion of the proceeds is considered as violation of high standards

of ethics and corporate governance and attract penalty under the provisions of SEBI
(PFUTP) Regulations, 2003.

Background
The SEBI conducted an investigation in dealing in securities by raising of funds through
preferential issue of equity shares and utilization thereof by the M/s Achal Investments Ltd.
(Company) to ascertain whether there was any violation of the provisions of SEBI Act, 1992,
Listing Agreement read with provisions of SEBI (LODR) Regulations, 2015 and SEBI (PFUTP)
Regulations, 2003

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Facts of the Case

The company had issued equity shares on preferential basis to 47 entities. The objects of the
preferential issue of equity shares issued to the shareholders are as under:
1. To strengthen the equity base of the company,
2. To arrange the funds required for meeting the enhanced working capital requirements of the
company,
3. To meet certain capital expenditure, and
4. To meet expenditure for general corporate purposes.
The company, in response to a Bombay Stock Exchange Notice admitted that it has deviated
from the stated objectives in utilization of the issue proceeds. Further, the company informed
SEBI that it has obtained ratification for the deviation from its shareholders in the AGM.
The ratified details of utilization of proceeds of preferential issue are mentioned below: l Loans
& Advances – Rs. 1,55,00,000 l Advance for purchase of shares – Rs. 27,69,600 l Repayment
of Loan – Rs. 8,50,000

Alleged Violations
A Show Cause Notice (SCN) issued to the Company inter alia, states the following allegations:

1. The Company has mis-utilized and diverted the proceeds received through the preferential
issue of equity shares.
2. The Company, while seeking ratification from its shareholders after a delay of 5 years, has
not made full and complete disclosure of facts and information pertaining to the alleged mis-
utilization and diversion of proceeds.
3. The Company by mis-utilizing and diverting the proceeds received through the preferential
issue of equity shares has committed fraud on its shareholders.
4. The Company failed to make the quarterly disclosure regarding utilization of preferential
issue proceeds as required under Clause 43 of Listing Agreement.
It was also alleged that following provisions have been violated by the company:
 Section 12A of SEBI Act, 1992 (SEBI Act) deals with Prohibition of manipulative and
deceptive devices, insider trading and substantial acquisition of securities or control
 Regulation 2(1)(c) of PFUTP Regulations

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 Regulation 3. Prohibition of certain dealings in securities

 Regulation 4. Prohibition of manipulative, fraudulent and unfair trade practices
 Conditions for Listing as per SCRA.

SEBI Findings:
One of the reasons for deviation of funds was advance for purchase of shares to the SEBI
registered Sub-brokers. However, it was found that the MoUs which were executed by the
Company do not stipulate even the basic details of the names of the scrips that need to be
purchased, quantity of shares, price, whether the shares have to be purchased in the primary
market or in the secondary market through Stock Exchanges or in off market, etc. Hence, it
was observed that the transfer of funds by the Company to the Sub-brokers could not have
been for the purpose of purchasing shares. To the contrary, it was alleged that the funds were
transferred for the Sub-brokers’ own use since no KYC formalities were completed and no
orders were made.

SEBI concluded that the company has mis-utilized the proceeds received from the preferential
issue of equity shares. This action is not only detrimental to the interest of the company but
also to the interest of its shareholders.

Another allegation was in relation to a loan given to an individual which was also ratified by
the shareholders. SEBI noticed that the said loan amount cannot be considered as a normal
business transaction of the Company as deployment of funds out of the working capital. No
legally binding agreement had been entered into by the Company, no interest was charged
from the borrower and no collateral was taken from the borrower. It was deduced that the
company had no intention to secure the return of funds.

In light of the aforesaid discussion, which brings out the alleged mis-utilization and diversion
of proceeds of preferential issue of equity shares by the Company, it was alleged that the
company has committed fraud as defined under Regulations 2(1)(c)(2) and 2(1)(c)(4) of
the PFUTP Regulations.

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SEBI observed that the company has employed, in connection with the preferential issue of
securities, a manipulative device to defraud the existing and prospective shareholders and has
engaged in a practice which has acted as a fraud on them. These acts of the Company in
making such a suggestion are a fraudulent or an unfair trade practice as it knew the same to
be not true and the Company was aware that such misleading information would influence
the decision of investors and induce them in dealing in securities.

The company contended that it sought shareholders’ approval for ratification of deviation of
proceeds of preferential issue. However, SEBI noted that the company had merely informed
the shareholders that it had deviated from the purpose for which the proceeds were raised
and had not made full and complete disclosure of facts and information pertaining to the
alleged mis-utilization and diversion of proceeds of preferential issue of equity shares.

SEBI concluded that the Company in order to ratify the alleged mis-utilization and diversion
of proceeds of preferential issue of equity shares from its shareholders, has in the said process,
misled and influenced its shareholders. Further, the act of the Company not to make true and
complete disclosure and diversion of proceeds of preferential issue of equity shares is not only
a device to manipulate its shareholders to ratify the mis-utilization and diversion of proceeds
of preferential issue of equity shares but it is also meant to deprive the shareholders of giving
informed consent regarding the ratification process. SEBI held that the said act of the
Company has led to the violation of provisions of Regulations 3 (a), (b), (c) and (d), 4(1),
4(2)(f), 4(2)(k) and 4(2)(r) of the PFUTP Regulations read with Sections 12A (a), (b)
and (c) of SEBI Act.

SEBI Order
SEBI issued the following directions to the company:
That it is restrained from accessing the securities market and from buying, selling or dealing
in securities, either directly or indirectly, in any manner whatsoever, for a period of five (05)
years from the date of Order.

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That it shall bring back the amount of Rs.1,38,29,600/- due to it, which has been extended
either directly or indirectly, to the entities mentioned in this Order, along with due interest,
expeditiously and take all necessary action, including legal actions, towards bringing back the
said sum. It shall file a quarterly report stating the compliance of this direction to SEBI.

Imposed penalty of Rs. 20,00,000/- (Rs. 10 lakh each under Section 15HA of the SEBI Act,
1992 and under Section 23E of the SCRA).

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CHAPTER 15 – DELISTING OF EQUITY SHARES

16.06.2022
Autoriders Finance Ltd. - Appellant v. National Stock Exchange of India Ltd. -Respondent
Securities Appellate Tribunal

Facts of the Case:

The National Stock Exchange of India Limited (‘NSE’) issued a show cause notice dated
August 26, 2020 to the appellant Company to show cause as to why the appellant Company
should not be compulsorily delisted under Regulation 22(1) of the Delisting Regulations on the
ground of continuous non-compliance with respect to the requirements under the Listing
Regulations. Thereafter, the respondent sent an e-mail to the appellant Company on September
4, 2020 stating therein that reply has not been received by the respondent.

It transpires that the Delisting Committee considered the matter on September 24, 2020 and
thereafter passed the impugned order on November 27, 2020 directing compulsorily delisting
of the appellant Company under Regulation 22(1) of the Delisting Regulations. The appellant
is aggrieved by the order dated November 27, 2020.

The appellant contends that no opportunity of hearing was provided by the Delisting Committee
before passing the impugned order and therefore the said order is violative of the principles of
natural justice as embodied under Article 14 of the Constitution of India.

The proviso to Regulation 22(1) of the Delisting Regulations clearly indicates that no order
directing delisting of the shares of the Company shall be made unless the Company is given
a reasonable opportunity of being heard.

SAT Order:
SAT opined that the impugned order is violative of principles of natural justice since no notice
of hearing or opportunity of hearing was provided to the appellant Company. The proviso clearly

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stated that no order shall be passed under Regulation 22(1) unless the Company has been
given a reasonable opportunity of being heard. It means that the Delisting Committee is
required to give a notice for hearing which admittedly no such notice was issued. For the
reasons stated aforesaid, the impugned order cannot be sustained and is quashed.

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CHAPTER 17 – MUTUAL FUNDS

23.05.2006
SEBI Vs. Shriram Mutual Fund
Hon’ble Supreme Court

Facts
The respondent was a mutual fund and the asset management company. During the period
from June, 1998 to September, 1999, the respondent had conducted business through associated
brokers, in excess of the limits prescribed under regulation 25(7)(a) of the 1996 Regulations
on 12 occasions covering 6 quarters. The respondent had failed to comply with the terms and
conditions attached to the certificate of registration granted to it, inasmuch as it did not
exercise diligence to ensure that the transactions by its own asset management company were
confined to the permissible limits. The Adjudicating Officer imposed a sum of Rs. 5 lakhs as
penalty on the respondent No. 2 under section 15E for failure to comply with regulation 25(7)
(a) and Rs. 2 lakhs on the respondent No. 1 for failure to comply with the terms and conditions
attached to the certificate of registration.

The respondents filed appeals before the Securities Appellate Tribunal, inter alia, contending
that the transactions with the associate brokers were related to thinly traded securities, for
which there were no ready markets available through the normal stock exchange, or were
relating to securities which did not have any large volume or trade in the market.

The Tribunal set aside the order passed by the Adjudicating Officer on the ground that the
penalty to be imposed for failure to perform a statutory obligation is a matter of discretion
which has to be exercised judicially and on a consideration of all the relevant facts and
circumstances. The Tribunal also held that the Adjudicating Officer had to be satisfied with
the material placed before him that the violation deserved punishment. The appeal was filed
to Supreme Court.

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HON’BLE SUPREME COURT JUDGEMENT

The Hon’ble Supreme Court set aside the decision of Securities Appellate Tribunal in Shriram
Mutual Fund v. Chairman.

It was held by Supreme Court that the penalty is warranted by the quantum which has to be
decided by taking into consideration the factors stated in section 15J of SEBI Act. In its
opinion, mens rea is not an essential ingredient for contravention of the provisions of a civil
act. The penalty is attracted as soon as contravention of the statutory obligations as
contemplated by the Act is established and, therefore, the intention of the parties committing
such violation becomes immaterial. In other words, the breach of a civil obligation which
attracts penalty under the provisions of an Act would immediately attract the levy of penalty
irrespective of the fact whether the contravention was made by the defaulter with any guilty
intention or not.

The SEBI was set up to promote orderly and healthy growth of the securities market and for
investors protection SEBI has been monitoring and regulating the activities of Stock Exchanges,
Mutual Funds and Merchant Bankers, etc. to achieve these goals. The capital market has
witnessed tremendous growth in recent times, characterized particularly by the increasing
participation of the Public. Investors’ confidence in the capital market can be sustained largely
by ensuring investors protection. That it became imperative to impose monetary penalties also
in addition to other penalties in cases of default.
The Court held that mens rea is not an essential element for imposing penalty for breach of
civil obligations.

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23.10.2017
SAHARA ASSET MANAGEMENT COMPANY P. LTD & ORS. Appellant(s) VERSUS
SECURITIES AND EXCHANGE BOARD OF INDIA & ORS. Respondent(s)
Hon’ble Supreme Court

Facts of the case:

SEBI passed an order dated June 23, 2011 against two Sahara group entities namely Sahara
India Real Estate Corporation Ltd. (SIRECL), Sahara Housing Investment Corporation Ltd.
(SHICL) and some of their Directors to refund the money collected through the issue of
Optionally Fully Convertible Debentures (OFCDs) and restrained those Directors from
associating themselves with any listed public company and any public company which intends
to raise money from the public till such time the money is refunded to the investors to the
satisfaction of SEBI.

Following these orders against the two Sahara group companies and their Directors SEBI
initiated proceedings by appointing a Designated Authority under the Intermediaries Regulations
on June 9, 2014. This Designated Authority was to enquire into whether there was any violation
of the provisions of the Mutual Fund Regulations, 1996 as well as related SEBI Circulars by
the Sahara Mutual Fund, Sahara Sponsor, Sahara AMC and its Trustees. The Designated
Authority submitted the report on October 14, 2014 holding that these entities are no longer
fit and proper persons to carry on the business of mutual fund and recommended cancellation
of certificate of registration of Sahara MF.

The impugned order has been issued consequent to the findings by SEBI that Sahara Sponsor
is not a ‘fit and proper person’ because its Promoter-Director is not a fit and proper person
and hence the Sahara MF and Sahara AMC are no longer fit and proper to carry on the business
of mutual fund

Thus, SEBI vide order dated July 28, 2015 had ordered cancellation of Certificate of Registration
of Sahara Mutual Fund with effect from expiry of 6 months from the date of the order.

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Subsequently, Sahara MF, Sahara AMC and others had preferred an appeal against the SEBI
order dated July 28, 2015 before the Hon’ble Securities Appellate Tribunal (SAT). The Hon’ble
SAT vide order dated July 28, 2017 disposed of the said appeal, granting a period of 6 weeks
to the appellants to approach the Hon’ble Supreme Court of India.

Sahara MF and others subsequently filed an appeal in the Hon’ble Supreme Court, challenging
the aforesaid order of the Hon’ble SAT.

Hon’ble Supreme Court Order

The said appeal was dismissed by the Hon’ble Supreme Court vide order dated October 23,
2017.

WINDING UP OF SIX YIELD-ORIENTED FIXED INCOME SCHEMES OF FRANKLIN TEMPLETON

INDIA AMID COVID-19- A CASE STUDY

INTRODUCTION
COVID-19 started showing its impact on the mutual fund industry during pandemic. Though
we could attribute most of that outflow to corporates redeeming funds to meet their quarter
end obligations, high volatility and uncertainty as consequences of the pandemic could have
also played a major hand in the redemption pressure for debt schemes. Foreign Institutional
Investors (FIIs) have been redeeming investments heavily in equity and debt segment ever
since WHO declared COVID-19 a pandemic. In March 2020, FIIs pulled out Rs. 60,375 crore
from the debt market.

High redemption and lack of buying interest has made debt mutual fund schemes vulnerable,
especially those with higher exposure to low rated instruments. This instability has claimed
its first casualty in debt mutual funds.

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ABOUT FRANKLIN TEMPLETON (INDIA)

Franklin Templeton’s association with India dates back to over 2 decades as an investor. As
part of the group’s major thrust on investing in markets around the world, the India office
was set up in 1996 as Templeton Asset Management India Pvt. Limited. It flagged off the
mutual fund business with the launch of Templeton India Growth Fund in September 1996,
and since then the business has grown at a steady pace.

Franklin Templeton (India) is one of the largest foreign fund houses in the country. It manages
one of the most comprehensive ranges of mutual funds catering to varied investor requirements
and offering different investment styles to choose from.

WINDING-UP OF SPECIFIC SCHEMES

The Trustees of Franklin Templeton Mutual Fund (FTMF) in India announced that they have,
after careful analysis and review of the recommendations submitted by Franklin Templeton
AMC, and in close consultation with the investment team, voluntarily decided to wind up their
suite of six yield oriented, managed credit funds effective from April 23, 2020.

In light of the severe market dislocation and illiquidity caused by the COVID-19 pandemic, this
decision has been taken in order to protect value for investors via a managed sale of the
portfolio. This action is limited to the below-mentioned funds, which have material direct
exposure to the higher yielding, lower rated credit securities in India that have been most
impacted by the ongoing liquidity crisis in the market.

Details of schemes being wound up

S. Name of the Scheme Scheme Characteristic (based Macaulay

No. on Macaulay duration or credit duration* in
rating) as stated in the years as on 22
scheme information April
document 2020

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1. Franklin India Ultra Short Bond Investing in Instruments with 0.38

Fund Macaulay duration between 3-6
months

2. Franklin India Short term Investing in Instruments with 2.41

Income Fund Macaulay duration between 1-3
years

3. Franklin India credit Risk Fund A bond fund focusing on AA and 2.37
below rated corporate bonds
(excluding AA+ rated corporate
bonds)

4. Franklin India Low Duration Investing in Instruments with 1.17

Fund Macaulay duration between 6-12
months

5. Franklin India Dynamic Accrual Investing across duration 1.95

Fund

6. Franklin India Income Investing in Instruments with 3.94

Opportunity Fund Macaulay duration between 3-4
years

*Macaulay duration is the weighted average of the time to receive the cash flows from a
bond. It is measured in units of years. Macaulay duration tells the weighted average time
that a bond needs to be held so that the total present value of the cash flows received
is equal to the current market price paid for the bond.

CAUSES FOR WINDING UP THESE SCHEMES

According to a statement to investors from FTMF, Franklin Templeton (India) winding up
these schemes in order to preserve value and secure an orderly and equitable exit for investors
in these yield-oriented schemes. The credit climate was extremely challenging over the last
quarter or so, and Covid-19 severely heightened the pressure resulting in a spike in yields and
sharply reduced liquidity. The ongoing global pandemic has impacted business activity across a

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wide range of sectors and diminished portfolio companies’ ability to access funds and service
existing debt. Mutual funds are facing unprecedented liquidity challenges during the lockdown
which was necessary to address the Covid-19 pandemic.

Factors like rising redemption pressures, mark to market losses, following spike in yields and
rising illiquidity in portfolios, following lower trading volumes have together caused severe and
worsening liquidity crunch for open-end mutual fund schemes. This impact will be long-lasting,
and bond market conditions are unlikely to return to normalcy in the immediate future.
The schemes had to resort to continuous borrowing to fund redemptions during this time, and
were unable to repay the borrowings through sale of portfolio securities due to the prevailing
market environment. The Investment manager did not believe it was prudent to continue
funding redemptions through potentially increasing levels of borrowings.

FTMF follows a high-risk high-return strategy for the above mentioned funds - Meaning a
major part of its portfolio is exposed to lower rated securities (rating below AAA). The market
disruption due to the virus outbreak has impacted these securities the most. Under conditions
of high redemption pressure, mutual funds sell their liquid assets to meet the demand, leaving
the portfolio highly exposed to illiquid assets. Thus, investors who choose to stay invested are
at a disadvantage here.

Anticipating continued liquidity stress to the funds, the fund house thought winding up
the scheme is the only viable option for the unit holders to minimize erosion of value.

KEY IMPLICATIONS FOR INVESTORS ON SUCH WINDING UP

Suspension of Purchase and Redemption:
The six wound up schemes were no longer available for subscription or redemption, post cut-
off time on 23 April 2020. All Systematic Investment Plans (SIP), Systematic Transfer Plans
(STP) and Systematic Withdrawal Plans (SWP) into and from the abovementioned schemes
stand cancelled post cut-off time on 23 April 2020.

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Distribution of monies from Scheme Assets:

Following the decision to wind-up the schemes, Franklin Templeton (India) will proceed to
assist the Trustees with orderly realization and liquidation of the underlying assets with the
objective of preserving value for unit holders, and with distribution of the proceeds thereof to
the unit holders after discharging the liabilities of the schemes.

Tax Implications:
The amount received by investors are in the form of redemption of units and would, where
such amount or part thereof represents a gain for the investor, be taxed as capital gain in the
hands of investors depending on inter alia the period of their investment in the scheme.
Investors can take advice from a tax expert as impact could vary depending on their status
and income.

SEBI/SAT/SUPREME COURT’S DIRECTION TO FRANKLIN TEMPLETON MUTUAL FUND –

KEY bULLETS
l SEBI vide its press release dated May 7, 2020 has advised Franklin Templeton mutual fund
(FT) to focus on returning money to investors, in the context of their winding up six of their
debt schemes.
 However, a small number of investors sought the intervention of various courts and winding
up of the schemes were stayed.
 In October 2020, the High Court of Karnataka issued its judgment, in which it upheld the
decision to wind up the Funds and held that there was “nothing wrong with the decision
making process,” but determined that consent of the unitholders u/r 18(15)(c) was required
to implement the decision.
 On December 3, 2020, the SC issued an interim order allowing the Trustee to seek
unitholder approval for winding up the six Funds, without prejudice to the right of the
parties to argue on the interpretation of the regulation and other aspects of the appeal.
 The Trustee then proceeded to conduct votes for each of the six Funds, which concluded
on December 29, 2020, and a substantial majority (above 96%) of the voting unitholders
of each of the Funds voted in favor of the winding-up decision. Thereafter, the SC allowed
the Trustee to distribute the cash available in the schemes to the respective unitholders

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proportionately and appointed SBI Funds Management Private Limited, a public sector
entity, to undertake the distribution.
 Further vide order dated February 12, 2021, the SC upheld the validity of the e-voting
exercise and confirmed the winding-up status of the schemes. With the consent of all the
parties, the SC appointed SBI Mutual Fund Pvt. Ltd as the liquidator to monetize the
assets of the scheme and distribute the proceeds to the unitholders.
 Since the date of the winding up till July 9, 2021, the six schemes have received INR
25,859 crore from maturities, coupons, sale, and prepayments. The total amount distributed
in the winding up schemes stands at INR 26,783.22 crores amounting to 106% of the
AUM as on April 23, 2020.

SEBI initiated a forensic audit/inspection, with respect to the affairs of the six fixed income
schemes and fund of funds schemes that invested in these six schemes. SEBI had
communicated the observations/findings of the said forensic audit/inspection to the Trustee
and the AMC and sought their comments together with relevant supporting documents/ records.
The Trustee and the AMC had submitted their response to SEBI. Subsequently, SEBI has issued
Show Cause Notices (‘SCNs’), on 24 November 2020 to the AMC and on 27 November 2020
to the Trustee and 8 employees of the AMC (including an ex-employee), upon consideration
of observations in forensic audit / inspection and responses thereon submitted by the AMC
and the Trustee. The Trustee and the AMC and 8 employees (including an ex employee) had
submitted their response to the SEBI on these SCNs.

On June 7, 2021, SEBI issued an order against the AMC and on June 14, 2021 a separate joint
order against the Trustee and certain AMC officers and employees, finding violations of certain
regulatory provisions, including – at a high level – with respect to similarity in investment
strategies among the Funds, calculation of duration and valuation of portfolio securities,
documentation of investment diligence and investment terms, and portfolio risk management.
SEBI’s orders include, as applicable, monetary penalties, disgorgement of investment
management and advisory fees, and a prohibition from launching new fixed income funds in
India for a two-year period.

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The AMC filed an appeal and an application for stay before the Hon’ble Securities Appellate
Tribunal (SAT). After hearing the parties, the Hon’ble SAT has stayed the operation of the
order passed by the WTM.

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CHAPTER 18 – COLLECTIVE INVESTMENT SCHEMES

05.06.2020
Dairyland Plantations (India) Limited – Noticee No. 1
Mrs. Roshan D. Nariman – Noticee No. 2
Ms. Taz N. Nariman – Noticee No. 3
Ms. Jeroo Nariman – Noticee No. 4
Mrs. Silloo R. Nariman – Noticee No. 5
Mr. Urvaksh Naval Hoyvoy – Noticee No. 6
Mrs. Shernaz Kershasp patel – Noticee No. 7
Mrs. Meher Khushru Patel – Noticee No. 8
Mrs. Rukhshana Meher Anklesaria – Noticee No. 9
Whole Time Member
Securities and Exchange Board of India

Facts of the Case:

Securities and Exchange Board of India (hereinafter referred to as “SEBI”) conducted an
examination into the business activities being carried out by Dairyland Plantations (India)
Limited (hereafter referred to as “Company/DPL/Noticee no.1”). The examination of the
business activities of the Company revealed that the Company had launched a scheme named
as Green Gold Bonds scheme (hereinafter referred to as “Scheme”) which apparently possessed
the requisite ingredients of a collective investment scheme (hereinafter referred to as “CIS”).

It was noticed that the said Scheme entailed a one-time payment of Rs. 5 000 in lieu of a
unit of 5 Teakwood trees with a holding period of 20 years and on maturity, the contributor/
investor had the option to get the teak trees or the realised sale proceeds thereof. The
examination of the details of the scheme further revealed that the Company had mobilised
approx. Rs. 1,00,82,000/- (Rs One Crore and Eighty-Two Thousand) from 1660
contributors/investors. It was observed that the Scheme was launched by the Company during
the period from 1992 to 1996 and during the said period as well as subsequently thereafter
during the operation of the Scheme, the Noticees no. 2 to 9 were its Directors and were

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responsible for the affairs of the management of the business of the Company. It was also
noticed that the said Scheme was being carried on without obtaining registration from SEBI,
in violation of provisions of Securities and Exchange Board of India Act, 1992 (hereinafter
referred to as “SEBI Act”) and SEBI (Collective Investment Schemes) Regulations, 1999
(hereafter referred to as “CIS Regulations”).

It is noted that Section 12 (1B) of SEBI Act, which came into effect on January 25, 1995
prohibited a person from carrying out any CIS, unless he obtains registration from SEBI.

However, the section permitted existing entity who were carrying out CIS activities prior to the
commencement of the aforesaid provision to continue with the existing scheme till Regulations
governing CIS are promulgated. Subsequently a separate CIS Regulations of SEBI was enacted
which came into force on October 15, 1999 in terms of which, all the existing CIS (prior to the
commencement of CIS Regulations) were required to apply for registration or else, were required
to wind up the existing CIS after making repayment to the contributors/investors and also were
further required to file a Winding Up and Repayment report (hereinafter referred to as “WRR”)
with SEBI in terms of the said CIS Regulations.

Accordingly, various companies including the Noticee Company, which were running CIS schemes
at the time of promulgation of the afore-stated CIS Regulations, were asked vide several letters
and public notices, to abide by the provisions of the CIS Regulations and submit their
compliance reports as mandated under the said Regulations. However, the Noticee Company
neither obtained provisional registration, nor applied for registration of its CIS Scheme by the
prescribed date of March 31, 2000, and did not even take necessary steps for winding up of
the Scheme. Therefore, a Show Cause Notice dated May 12, 2000 (hereinafter referred to as
“SCN”) was issued to the Company calling upon it to show cause as to why suitable directions
shall not be issued against it for continuing with its CIS activities, in violations of the provisions
of SEBI Act r/w the CIS Regulations.

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Order:
SEBI issue following directions:-
a) The Noticee Company shall, within a month from the date of issue of this order, cause to
effect a newspaper publication in one national daily in English and in Hindi each, and in
a local daily with wide circulation in each of the States wherein the investors reside,
mentioning in bold letters the name of the Scheme i.e ‘Green Gold Bonds Scheme’ in the
said News Papers and inviting complaints/claims from any investor in respect of the said
Green Gold Scheme from contributors/investors that are still outstanding. The newspaper
publications shall also contain an advisory, informing the investors to forward a copy of
their complaints/claims, with the superscription “Complaints/Claims in the Matter of
Dairyland Plantations (India) Ltd.”, to SEBI.

b) A period of one month from the date of the advertisement shall be provided to
contributors/investors for submitting any claim/complaint as stated aforesaid.

c) The Company shall furnish to SEBI the details of the investors viz; name of the investors,
amount invested, year of investment, address and other material information etc., within
a period of 15 days from the date of this order.

d) An interest bearing escrow account shall be opened by the Noticee Company in a

nationalised public sector bank and the entire outstanding amount payable to the investors
under the above stated Scheme shall be transferred/deposited to this escrow account within
one month from the date of this order.

e) The Company shall wind up its existing CIS and refund the money collected by the
Company under the Scheme to the contributors/investors which are due to them strictly
as per the terms of offer of the scheme. Those investors who want to opt for repayment
in the form of 5 Teak-wood trees and not in cash, the Noticees shall refund them in the
form of Teak-wood Trees on a best efforts basis but in the event the repayments cannot
be made in the form of Teak-wood trees for want of permission/authorisation to cut the
trees or any other genuine hardships, those investors shall also be repaid their dues in cash

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as per the terms of the scheme. All the monetary refunds to the contributors/investors
shall be made through ‘Bank Demand Draft’ or ‘Pay Order’ (both of which shall be crossed
as “Non Transferable”) or through any other appropriate banking channels such as NEFT
or RTGS with appropriate audit trail.

f) The present incumbent Directors (Noticees no. 4 to 6) shall ensure that the aforesaid
directions are complied with.

g) Noticee Company and present incumbent Directors shall submit to SEBI a final Winding
Up and Repayment Report ( WRR) in the prescribed format for the purpose along with
information on the claims so received, contributors/ investors so refunded and other details
of escrow account duly supported by list of all contributors/investors, their contact details,
details of investments and corresponding refunds made to the investors, bank account
statements of the Company indicating refunds so made to the investors and receipts taken
from the investors acknowledging such refunds along with a consolidated statement of
such repayments having been made, duly certified by two Independent Chartered
Accountants, within a period of six (06) months from the date of this Order.

h) Any amount remaining balance in the aforesaid escrow account after making repayment to
contributors/ investors, shall be transferred to Investor Protection and Education Fund
established under the SEBI (Investor Protection and Education Fund) Regulations, 2009
after a lapse of 1 year from the date of this order.

i) All the Noticee Directors along with the Company (Noticee No.1) except for the Noticee
no. 2 and 3 (against whom the proceedings stand abated on account of death), are
restrained from accessing the Securities Market including by issuing prospectus, offer
document or advertisement soliciting money from the public and are further prohibited
from buying, selling or otherwise dealing in securities, directly or indirectly in any manner,
for a period of one (01) year with effect from the date of filing of WRR to SEBI. It is
clarified that during the period of restraint, the existing holding of securities of the Noticees
including units of mutual funds, shall remain frozen.

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j) In the event the Noticee Company and the present Directors fail to carry out the directions
issued at sub-paragraph (a) to (h) above or any complaint is received hereinafter
suggesting that the Company has failed to pay all the dues to the investors, the Noticee
Company and its Directors (Noticees no. 4, 6, 7, 8 and 9) shall be jointly and severally
liable to refund to the contributors/ investors such amounts in the manner provided under
the direction in subpara (e) above within a period of 03 months from the end of the six
(06) months as directed under sub-para (g) above.

k) The Noticee Company and its present Directors shall not divert any funds raised from
public at large and shall not alienate or dispose of or sell any of the assets of the Company
except for the purpose of making refund to its investors as directed above.

l) The Noticee Company and Director Noticees no. 4, 6, 7, 8 and 9 shall provide inventory of
details of all their assets (movable and immovable) within a period of one (01) month
from the date of this order.

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25.02.2019
Nicer Green Housing Infrastructure Developers Ltd. & Ors. (Appellant) vs. SEBI
(Respondent)
Securities Appellate Tribunal

In the absence of any evidence that the appellants had refunded and that they are ready
and willing to pay the balance amount to investors in a time bound manner, SAT is of the
opinion that there is no infirmity in the order passed by SEBI disposing of their
representations.

Facts of the case:

The Nicer Green Housing Infrastructure Developers Ltd., Appellant No. 1 is a company
incorporated under the Companies Act, 1956 as a public limited company and is engaged in the
business of acquiring agricultural land and developing the same for the purpose of re-sale.

SEBI found that the activity of fund mobilization by the appellant no. 1 under its scheme fell
within the ambit of “Collective Investment Scheme” as defined under Section 11AA of Securities
and Exchange Board of India Act, 1992 (hereinafter referred to as, ‘SEBI Act’). SEBI issued
an order dated November 9, 2015 under Section 19 read with Sections 11(1), 11B and 11(4) of
the SEBI Act read with Regulation 65 of Securities and Exchange Board of India (Collective
Investment Schemes) Regulations, 1999 issuing a slew of directions restraining the appellant
and its directors from collecting any money from the investors or to launch or to carry out any
investments schemes.

SEBI further directed to refund the money collected under its scheme to the investors and
thereafter wind up the company. The appellants being aggrieved by the said order filed an
Appeal before the Securities Appellate Tribunal wherein the appellants contended that they are
ready and willing to comply with the order passed by SEBI contending that out of an amount
of Rs. 31.71 crore collected the appellants have already refunded Rs. 27.48 crore and that the
appellants are ready and willing to refund the balance amount in a time bound manner.

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Order:
SAT finds that no proof has been filed either before SEBI or even before this Tribunal to show
that the appellants had refunded a sum of Rs. 27.48 crore and that they are ready and willing
to pay the balance amount in a time bound manner. In the absence of any evidence being
filed, SAT is of the opinion that there is no infirmity in the order passed by SEBI disposing of
their representations. The appeal lack merit and is dismissed summarily.

SEBI IN ITS ORDER DATED FEBRUARY 25, 2020 IN CASE OF VAYAA BUILDER AND
DEVELOPERS (P.) LTD. (VBDP) HELD

Where VBDP and its directors had mobilized funds from investors through different land/plot
allotment scheme which satisfied four requirements of a collective investment scheme as
defined in section 11AA and since these schemes were being carried out without obtaining
registration from SEBI in violation of section 12(1B), VBDP and its directors were to be directed
to refund illegally mobilised funds to investors and were also to be restrained from accessing
securities market.

SECURITIES APPELLATE TRIBUNAL, MUMBAI BENCH IN CASE OF SHREE SAI SPACE

CREATIONS LTD. (SSCL) (APPELLANT COMPANY) HELD –

Where appellant company was involved in mobilizing funds by launching (CIS) without obtaining
SEBI registration and it failed to comply with directions issued by SEBI to refund entire amount
to investor, penalty of Rs. 25 lakhs imposed on appellant was reasonable and Adjudicating
Officer’s direction to pay penalty of Rs. 25lakhs by appellant could not be faulted.

SEBI concluded that appellant company set up in year 2010 was engaged in fund mobilizing
activity from public by launching Collective Investment Scheme (CIS) without obtaining SEBI
registration and accordingly directed appellant to file a proposal for refund of entire amount.
However, appellants had not completed process of repayment to investors despite lapse of three
years from date of order.

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 CS Vikas Vohra
Founder - YES Academy

Vikas is a Commerce and Law Graduate and a

Company Secretary by profession. He has to his
credit, few other Certifications and
specialisations in Corporate and Securities Laws.
On the teaching side, he has taught more than
20,000 students.

He is also a speaker at various Management

Institutes and ICSI on various Corporate matters
and Entrepreneurship. In his previous
assignments, he worked as an Associate Vice
President with LexValueAdd Consulting Private
Limited, an Investment Banking firm based out
of Mumbai.

He has significant hands on experience in

Mergers and Acquisitions, Public Offerings and
consequent listing of the Shares and GDR’s on
the Bourses, fund raising and Deal Structuring.
Before that he also worked with Kirloskar
Brothers Investments Limited & Bajaj Auto
Limited wherein, he was deeply involved in
various M&A activities.

Vikas is presently the Founder of YES Academy

for CS, Pune He is also a Co-Founder of
PapaZapata (Mexican food chain) &
GujjuKhakhra (Indian Breads). He enjoys writing
poetry and doing meditation in his free time.

07969 21 5500
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