Jurisdiction - India
India – Capital Markets & Securities Updates.

9 February, 2015


  • On October 28, 2014, the Indian securities market regulator notified the SEBI (Share Based Employee Benefits) Regulations, 2014 (‘SBEB Regulations’) to provide a framework for regulation of all schemes by companies for the benefit of their employees involving or dealing in shares, directly or indirectly. The SBEB Regulations repeal the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The applicability of the SBEB Regulations is as under:

i. Applicability to schemes: The SBEB Regulations are applicable to employee stock option schemes, employee stock purchase schemes, stock appreciation rights schemes (‘SAR’), general employee benefits schemes and retirement benefit schemes (collectively ‘Schemes’).

ii. Applicability to Companies: The SBEB Regulations apply to any company whose shares are listed on a recognised stock exchange in India, and (a) which has a Scheme for direct or indirect benefit of employees; and (b). involving dealing in or subscribing to or purchasing securities of the company, directly or indirectly; and (c). if such Scheme is, directly or indirectly, (x) set up; (y) funded or guaranteed; or (z) controlled or managed; by the company or any other company in its group (‘Eligible Companies’).

iii. Implementation through trusts: Eligible Companies may implement Schemes either directly or by setting up one or more irrevocable trusts. However, where the Schemes involve secondary acquisition or gift of securities, or both, then it is mandatory for the Eligible Company to implement such Schemes through trusts. Further, the Securities and Exchange Board of India (‘SEBI’) may specify the minimum provisions to be included in the trust deeds of such trusts. Such trust deeds (and any modifications thereto) are required to be mandatorily filed with such stock exchanges in India where the shares of the Eligible Company are listed.

  • At its meeting held on November 19, 2014, SEBI took certain decisions in relation to proposed amendments to (i) SEBI (Prohibition of Insider Trading) Regulations, 2014; (ii) SEBI (Delisting of Equity Shares) Regulations, 2009; (iii) SEBI (Mutual Funds) Regulations, 1996; and (iv) SEBI (Foreign Venture Capital Investors) Regulations, 2000.

i. SEBI (Prohibition Of Insider Trading) Regulations, 2014 (‘Insider Trading Regulations, 2014’):

SEBI approved the Insider Trading Regulations, 2014, the key features of which include:

a. The definition of ‘insider’ has been broadened by including persons connected on the basis of any contractual, fiduciary or employment relationship that allows such person access to unpublished price sensitive information (‘UPSI’).

b. A clear prohibition has been placed on communication of UPSI, except for certain legitimate purposes mentioned in the Insider Trading Regulations, 2014.

c. In an attempt to align the Insider Trading Regulations, 2014 with international standards, disclosure of UPSI has been mandated before trading so as to rule out asymmetry of information in the market.

d. In order to facilitate legitimate business transactions, UPSI has been permitted to be communicated with certain safeguards mentioned in the Insider Trading Regulations, 2014.

Pursuant to the above discussions, SEBI has by way of a notification dated January 15, 2015,notified the SEBI (Prohibition of Insider Trading) Regulations, 2015.

ii. Amendment To SEBI (Delisting of Equity Shares) Regulations, 2009 (‘Delisting Regulations’):

SEBI has approved certain amendments to the Delisting Regulations. These include the following:

a. Delisting will be validly completed only when the shareholding of the acquirer together with the shares tendered by the public shareholders reaches 90% of the total share capital of the company and if at least 25% of the number of public shareholders, holding shares in dematerialized mode as on the date of the SEBI board meeting of the company where the proposal for such delisting was approved), tender in the reverse book building process.

b. The offer price determined through reverse book building will be the price at which the shareholding of the promoter, after including the shareholding of the public shareholders who have tendered their shares, reaches the threshold limit of 90%.

c. The promoter/promoter group will be prohibited from making a delisting offer if any entity belonging to such group has sold shares of the company during a period of six months prior to the date of the SEBI board meeting where the proposal for such delisting was approved.

d. An option has been provided to the acquirer to delist the shares of the company directly through Delisting Regulations pursuant to triggering SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (‘Takeover Regulations’). However, if the delisting attempt fails, the acquirer will be required to complete the mandatory open offer process under the Takeover Regulations and pay interest at the rate of 10% per annum for the delayed open offer.

iii. Amendment To SEBI (Mutual Funds) Regulations, 1996 (‘Mutual Funds Regulations’):

SEBI has approved a proposal permitting asset management companies (‘AMCs’) who are yet to meet with the net worth requirement of INR 50,00,00,000 (Approx. USD 8.2m) to launch a maximum of 2 (two) schemes per year till such AMCs meet with the net worth requirement. Such permission will be granted by SEBI on a case to case basis depending on such AMCs demonstrating that serious efforts are being made by them to meet the net worth requirements. By a notification dated December 30, 2014, SEBI has amended Regulation 21 of the Mutual Funds Regulations implementing the above proposal.

iv. Amendments To SEBI (Foreign Venture Capital Investors) Regulations, 2000 (‘FVCI Regulations’):

a. SEBI approved the amendments to the FVCI Regulations permitting foreign venture capital investors to invest in non banking financial companies that are classified as ‘Core Investment Companies’ by RBI.

b. By a notification dated December 30, 2014, SEBI amended the definition of ‘venture capital undertaking’ by specifying that companies engaged in (1) non-banking financial activities, other than core investment companies in the infrastructure sector, asset finance companies, and infrastructure finance companies registered with the RBI; (2) gold financing; (3) activities not permitted under industrial policy of Government of India; (4) any other activity that may be specified by SEBI in consultation with Government of India from time to time, are not included in the definition of ‘venture capital undertakings’ under the FVCI Regulations.

v. Additionally, SEBI took decisions in relation to (i) conversion of listing agreements into regulations titled ‘SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2014’; (ii) moving to a risk based supervision of market intermediaries; (iii) granting of single window registration to depository participants; (iv) acceptance of recommendations of the ‘Depository System Review Committee’; (v) procedure of notice for settlement of certain administrative and civil proceedings with SEBI; (vi) initiation of public consultation process regarding re-classification of promoters as ‘public’; (vii) initiation of public consultation process regarding issuance of partly paid shares and warrants by Indian companies; and (viii) approval of the proposal to review the policy in relation to willful defaulters.

vi. Proposal To Initiate Public Consultation Process On Re-Classification Of Promoters As ‘Public’:

Pursuant to the approval at the SEBI board meeting, SEBI issued a discussion paper on ‘Re-classification of Promoters as Public’ and inviting comments from the public on or before January 16, 2015. SEBI has suggested 3 (three) grounds on the basis of which an entity belonging to promoter / promoter group of listed companies may re-classify its shareholding to be part of the public category, subject to certain conditions:

a. pursuant to an open offer under the Takeover Regulations or on account of an ex-emption granted by SEBI under the Takeover Regulations.

b. pursuant to a separation agreement, where such agreement is registered under the Registration Act, 1908 or where the material terms of the separation agreement are disclosed to the stock exchanges prior to the reclassification.

c. where the promoter along with the entire promoter group to which the promoter belongs, taken together, holds less than 5% (five per cent) shares in the company (including any convertibles/outstanding warrants/American Depositary Receipt /Global Depositary Receipt Holding).

In relation to the grounds set out in vi.b. and vi.c. above, it may be noted that while the relevant promoter group entity may be classified as ‘public’ post the first year, such promoter group entity will not be considered to be part of public shareholders for another 3 years for the purpose of compliance with minimum public shareholding requirements under the Securities Contracts (Regulation) Rules, 1957.

  • SEBI has, pursuant to its circular dated December 01, 2014, modified the offer for sale (‘OFS’) mechanism through stock exchanges in India in order to make it easier for retail investors to participate in such OFS.1 In this regard, SEBI has decided that the sellers may give an option to retail investors to place their bid at cut-off price in addition to placing price bids, subject to prescribed conditions.

  • SEBI has released frequently asked questions in relation to SEBI (Research Analysts) Regulations, 2014 (‘RA Regulations’) on December 9, 2014 (‘FAQs’). Certain key clarifications contained in the FAQs are as follows:

i. Periodic reports such as sending financial account statements, annual reports and any other communication as required under the specific regulations prepared for unit holders of mutual fund, alternative investment fund or clients of portfolio managers and investment advisers are excluded from the definition of research report under the RA Regulations.

ii. Making buy/sell/hold recommendation on individual stocks based on the technical analysis is not exempted from the purview of the RA Regulations. However, technical analysis relating to the demand and supply for a particular sector or index is exempted from the purview of the RA Regulations.

iii. Personnel engaged in clerical activities/marketing activities, back office assistance, support services, etc. in relation to publication and/or distribution of research report are not covered under the purview of the RA Regulations.

iv. Individuals employed as research analyst with an entity are not required to obtain registration certificate from SEBI.

v. Journalists who are on the payrolls of media agency such as newspaper or television are not required to get registered with SEBI. However, if they make public appearances or communicate via public media to make a recommendation or offer an opinion concerning securities or public offers, the provisions of Regulation 16 (on limitations on trading) and Regulation 17 (on limitations on compensation) of the RA Regulations will be applicable.

vi. Certain limitations on trading and dealing in securities prescribed under the RA Regulations are not applicable to a research entity or its associates, if such research entity has segregated its research activities from all other activities and maintained armslength relationship between such activities. Further, within 6 (six) months from the commencement of the RA Regulations i.e. December 01, 2014, the existing research entities can segregate its research activities from all other activities.

  • The RBI has, by way of a circular dated December 9, 2014, decided to permit an Indian Alternative Investment Fund (‘AIF’), registered with SEBI, to invest overseas in equity and equity-linked instruments, subject to an overall limit of USD 500m. Accordingly, AIFs registered with SEBI, desirous of making overseas investments may approach SEBI for prior approval without any requirement for a separate permission from the RBI.

  • SEBI has released a discussion paper on issuance of partly paid shares and warrants (‘Discussion Paper’) in light of the changes made to the existing framework under Foreign Exchange Management Act, 1999 (‘FEMA’) for issuance of such instruments to foreign investors. The Discussion Paper aims at harmonising the framework for issuance of the aforesaid instruments under the provisions of FEMA and SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (‘ICDR’). The Discussion Paper proposes the following amendments to the provisions of the ICDR:

i. Amendment to Regulation 54(7) of ICDR pertaining to rights issues, which specifiesthat in case of an option for part payment being provided by the issuer in rights issue, such part payment on application must not be less than 25% of the issue price. Currently, the minimum upfront payment for partly paid shares is not specified under the ICDR in case of rights issue.

ii. Incorporating express provisions pertaining to pricing of the warrants stating that pricing and price / conversion formula is required to be determined upfront and 25% of the consideration amount be received upfront. Currently, there is no specific provision regarding minimum upfront payment to be received by the issuer. Further, in case of non-exercise of warrants, entire upfront payment may be forfeited by the issuer.

iii. Amendment to Regulation 4(3) of ICDR whereby the tenure of warrants issued along with public issue or rights issue of specified securities is increased to 18 months from the existing 12 months.

End Notes:

1 Paragraphs 5 and 6 of the circular on OFS issued by SEBI dated July 18, 2012 and paragraphs 3.8 and 3.12 of the circular on OFS issued by SEBI dated August 08, 2014 have been modified by way of this circular.



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


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