• The Second Securities Laws (Amendment) Ordinance, 2013 (‘Ordinance’) was promulgated on July 18, 2013 and subsequently re-promulgated on September 16, 2013 and March 27, 2014, which specifically empowered SEBI to make regulations in relation to search and seizure under Section 11C of the SEBI Act, 1992 (‘SEBI Act’). Pursuant to the Ordinance, SEBI has on January 10, 2014 issued the SEBI (Procedure for Search and Seizure) Regulations, 2014 (‘Regulations’), specifying detailed procedures to be followed at different stages of an investigation. Pursuant to the Regulations, the investigating authority is required to obtain a warrant of authority (‘Warrant’) to search any persons or premises if he has reason to believe that documents and records of, or relating to, any intermediary or any person associated with securities market in any manner, may be destroyed, mutilated, altered, falsified or secreted. The Regulations also prescribe the process required to be followed by an investigating authority or any other officer (the ‘Authorised Officer’), once such a warrant has been granted including the preparation of a seizure memorandum (‘Seizure Memo’) containing inter alia the details pertaining to entry and exit time, identity of persons searched, and signatures from the Authorised Officer, witnesses and the owner of the searched premises. The Regulations also impose certain general obligations on the Authorised Officer, including conducting such search and seizure in the presence of a witness, delivering a copy of the Seizure Memo to the person from whose possession or control documents are seized, and refraining from entering any place of business or profession after daytime.

Further, the Regulations prescribe certain rights of the persons being searched including the right to see the Warrant, and obtain a copy from the Authorised Officer, verify the identity of the Authorised Officer, and the officials assisting him.

Pursuant to the Regulations, the documents seized are required to be handed over to the investigating authority, who cannot be the same person as the Authorised Officer (‘Investigating Authority’). The Investigating Authority is required to keep the documents for a maximum of 180 days from the date of seizure, and to ensure that the documents (including electronic records) are stored in suitable conditions. Any personal information contained in any document seized in accordance with the Regulations may not be divulged to any third person without the consent of the person to whom the information relates, unless required for compliance with any law.

In the event of any non-compliance while providing information, the Regulations state that any person / intermediary will be liable for penalties including fines, imprisonment and cancellation of licences under the SEBI Act and regulations thereunder.

• The SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 (‘Settlement Regulations’) was notified on January 9, 2014, with retrospective effect from April 20, 2007. The Settlement Regulations effectively replaces and rescinds the scheme of Consent Orders and Compounding of Offences issued by SEBI. All applications filed and pending under the erstwhile SEBI consent scheme are deemed to have been filed under and will be dealt with, in accordance with the corresponding provisions of the Settlement Regulations.

Set out below are certain key changes brought about by the Settlement Regulations:

i. Cases already pending before a court or tribunal are not permitted to be settled;
ii. The list of violations that are not permitted to be settled has been expanded to include, inter alia, failure to make disclosures in offer documents by issuers or entities that invite investments under regulations framed by SEBI and raise money by issuing securities or pooling funds in violation of securities laws; and
iii. The Settlement Regulations permit non-monetary settlement terms in addition to monetary settlement terms.

• SEBI, in its board meeting on February 13, 2014, has approved several proposals to amend the Listing Agreement with respect to corporate governance norms for listed companies. The amendments, inter alia, propose to align the provisions of Listing Agreement with the provisions of 2013 Act. Set out below are certain key proposals, which will be made applicable to all listed companies with effect from October 01, 2014:

i. Independent Directors: It has been proposed to exclude nominee directors from the definition of ‘Independent Director’. Further, it is proposed to prescribe separate meetings of Independent Directors, performance evaluations of independent directors and prohibition of stock options to them;

ii. Audit Committee: It is proposed to expand the role of the audit committee. Further, the prior approval of the audit committee would be required for all material related party transactions (‘RPTs’);

iii. RPTs: Additionally, it is proposed to expand the scope of the definition of RPT, to include elements of the 2013 Act and accounting standards. Further, a special resolution of the shareholders would be required to approve all material RPTs, with related parties abstaining from voting;

iv. Committees Of The Board: The constitution of a stakeholders relationship committee, and mandatory constitution of nomination and remuneration committee, with independent chairmen is proposed; and

v. A compulsory whistle blower mechanism is proposed. 

SEBI also approved, inter alia, proposals to put in place provisions relating to principles of corporate governance, policy on dealing with RPTs, divestment of material subsidiaries etc.

For further information, please contact:

Zia Mody, AZB & Partners
[email protected]

Abhijit Joshi, AZB & Partners 
[email protected]

Shuva Mandal, AZB & Partners 
[email protected]

Samir Gandhi, AZB & Partners
[email protected]

Percy Billimoria, AZB & Partners 
[email protected]

Aditya Bhat, AZB & Partners 
[email protected]

AZB & Partners Capital Markets Practice Profile in India