Jurisdiction - India
India – Capital Markets & Securities Updates.

17 July, 2014

  • The Indian Council of Investors (‘ICI’) has filed a public interest litigation (‘PIL’) in the Bombay High Court (‘Bombay HC’) seeking that SEBI cease and refrain from requisitioning call data records (‘CRs’) and details of tower locations from Telecom Service Providers (‘TSPs’). ICI made the following submissions: (a) calling for CRs from TSPs by SEBI violates the fundamental right of privacy (under Article 21 of the Constitution); (b) SEBI is prohibited from calling for any CRs under Section 5 (2) of the Telegraph Act, 1885 (‘Telegraph Act’); and (c) correspondence between the officers of SEBI and GoI indicates that SEBI was aware that it lacked the authority to call for such information, as no amendment has been made under Section 5 (2) of the Telegraph Act.


In response to the above, SEBI argued that such powers stem from Sections 11 (1), (2) (i) and (ia), 11 (3) and Section 11 C (3) of the SEBI Act, 1992 (‘SEBI Act’). SEBI further argued that Section 5 (2) of the Telegraph Act applied solely to intercepting calls and messages, whereas SEBI only requisitioned a static record of calls having been made to a particular telephone / mobile number and their location. Reliance was also placed on the provisions of the Securities Law (Amendment) Ordinances issued by GoI on July 16,2013, September 16, 2013 and March 28, 2014 (collectively, ‘Ordinances’), wherein Section 11 (2) (ia) of the SEBI Act was amended to enable SEBI to call for information and records from “any person”.


After consideration of the above submissions, on April 22, 2014, the Bombay HC through Chief Justice J. Sanklecha, held that SEBI always had the power to call for CRs and any ambiguity had been removed by the Ordinances. However, the Bombay HC has laid down certain guidelines to be followed by SEBI to prevent misuse and protect the right to privacy guaranteed under Article 21 of the Constitution:


i. SEBI cannot exercise such powers for conducting a generic enquiry and can only exercise it in respect of a specific person against whom an investigation is underway;


ii. Further, such information can only be called for by an officer duly authorised by SEBI as per the delegation order;


iii. The opinion of such authorised officer is to be recorded in the file, indicating application of mind by such officer to the effect that CRs and / or information regarding tower locations would be relevant for any investigation / enquiry by SEBI in respect of any transaction of securities; and



iv. The CRs of any such subscriber and information regarding tower locations is a matter of confidentiality and privacy and, therefore, such privacy cannot be invaded except in accordance with the law.


However, the Bombay HC also stated that this decision is being rendered in light of the provisions of the SEBI Act as amended by the Ordinances, and that it does not express any opinion in relation to any CRs or information requisitioned prior to any period covered by the Ordinances.


  • Pursuant to representations received from several market participants, including stock exchanges, industry representatives and investor associations, SEBI reviewed the present conditions for the delisting of securities of companies under the SEBI (Delisting of Equity Shares) Regulations, 2009 and released a discussion paper on May 9, 2014 (‘Delisting Discussion Paper’), incorporating these concerns and suggestions. The key issues sought to be addressed by way of the Delisting Discussion Paper, inter alia, include alternatives to the price discovery mechanism and delisting threshold, options for increasing shareholder participation in delisting offers, alternative mechanisms for shortening of the delisting process and facilitating ease of delisting by small companies.


  • With a view to consolidate the existing regulations relating to listing conditions and disclosure requirements for the transfer of securities, SEBI formed a committee comprising members of various stock exchanges and SEBI, to draft all encompassing regulations called the SEBI (Listing Obligations and Disclosures Requirement) Regulations, 2014 (‘Draft Listing Regulations’).


  • The Draft Listing Regulations have been proposed on May 5, 2014, in order to maintain a single document in line with the existing Listing Agreements, align existing regulations with the 2013 Act and to address the concerns of excessive delegation with respect to disclosure requirements. The Draft Listing Regulations include chapters on:


i. Principles Governing Disclosures And Obligations Of A Listed Entity: This chapter lists common obligations of listed entities such as co-operation with intermediaries registered with SEBI, filing of information, guidelines on maintenance of books of account and records, payment of dividend or interest, redemption or repayment and a grievance redressal mechanism to handle investor complaints electronically;


ii. Common Obligations Of Listed Entities: This chapter includes generic obligations of listed entities with respect to filing of information, responsibilities of compliance officers, fees, etc., that have been made applicable to all types of listed securities;


iii. Obligations Of A Listed Entity That Has Listed Its Specified Securities: This chapter lists specific obligations of a listed company under the Equity Listing Agreement, including the corporate governance norms under Clause 49 of the Equity Listing Agreement such as constitution of board of directors and compliance requirements of the listed entity, vis-a–vis, its subsidiaries, as well as other obligations such as minimum public shareholding requirements and intimation to stock exchanges;


iv. Provisions Applicable To Non Convertible Debt Securities And Non Convertible Redeemable Preference Shares: The provisions of the Equity Listing Agreement are proposed to be made applicable to non convertible debt securities and non convertible redeemable preference shares;


v. Provisions Relating To Debt: This chapter attempts to remove certain inadequacies of the Equity Listing Agreement in addressing the disclosure requirements, where equity and non convertible debt securities or equity and non convertible redeemable preference shares were listed. Accordingly, certain additional regulations have been made applicable in cases where more than one type of security is listed;


vi. Provisions Relating To Indian Depository Receipts: The chapter would apply to listed entities whose securities market regulators are signatories to the Multilateral Memorandum of Understanding of International Organisation of Securities Commission issuing “Indian Depository Receipts” as defined under Companies (Issue of Indian Depository Receipts) Rules, 2004 (‘IDRM’). This chapter specifies the general obligations of listed entities, the disclosure and corporate governance requirements and, provisions with respect to delisting of Indian Depository Receipt under the IDRM;


vii. Provisions Relating To Securitised Debt Instruments: This chapter is applicable to special purpose distinct entities issuing securitised debt instruments and trustees of the special purpose distinct entity as per the Securities and Exchange Board of India (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008. This chapter, inter alia, specifies details regarding terms of the securitised debt instruments, intimations requirements to the stock exchanges, and information to investors;


viii. Listing And Disclosure Requirements For Mutual Funds: This chapter provides for mandatory listing of units of close ended schemes and flows from the SEBI (MutualFunds) Regulations, 1996, instead of the current practice of mutual funds making use of the Equity Listing Agreements;


ix. Procedure For Action In Case Of Default: This chapter includes provisions for liability for contraventions, inspection and disciplinary proceedings, and directions by SEBI; and


x. Regulations On Corporate Governance: This chapter builds on Clause 49 of the Equity Listing Agreement and includes requirements specifying minimum information to be placed before the board of directors, review and certification of financial statements by the chief executive officer and chief financial officer, the role of the audit committee and its functions of review of information, and compliance requirements that are discretionary.


  • SEBI, on June 17, 2014, has released a consultation paper on crowdfunding in India (‘Consultation Paper’), inviting comments from the public by July 16, 2014. The Consultation Paper provides an overview of the global crowdfunding scenario, including the regulatory approaches in different jurisdictions, and proposes a framework for its implementation in India.Crowdfunding is solicitation of funds of a small amount from multiple investors through a web-based platform or social networking site for a specific project, business venture or social cause.


The regulatory framework proposed by SEBI in the Consultation Paper includes stipulations in relation to the types of investors that should be allowed to invest through this mode, the types of entities that should be allowed to raise funds through this mode, types of entities that should be allowed to set up internet based crowdfunding platforms.


The Consultation Paper proposes that SEBI’s role in the crowdfunding process should be limited to the following: (a) recognition of crowdfunding portals; (b) issuance of guidelines / circulars on what information is to be disclosed in the private placement offer letter; (c) conducting periodic audits / inspections and enforcement of the crowdfunding regulations; (d) oversight and regulation of the crowdfunding market in India.


  • Pursuant to the RBI circular dated June 6, 2014 (as further detailed under the ‘Foreign Exchange’ section), on June 17, 2014, SEBI issued a circular on investments by Foreign Portfolio Investors (‘FPIs’) in non-convertible / redeemable preference shares or debentures of Indian companies (‘June 17 SEBI Circular’). The June 17 SEBI Circular also specifies that the investments by FPIs in these securities will be subject to the overall corporate debt investment limits (currently at USD 51bn).


  • On June 17, 2014, SEBI issued a circular on Base Issue Size, Minimum Subscription, Retention of Over-Subscription Limit and further disclosures in the Prospectus for Public Issue of Debt Securities (‘Public Issue Circular’). The key provisions as set out in the Public Issue Circular are summarized below:


i. Minimum Subscription Limit: Minimum subscription for public issue of debt securities will be 75% of the base issue size. Further, if the issuer does not receive minimum subscription of its base issue size (i.e., 75%), then the entire application monies are required be refunded within 12 days from the date of the closure of the issue. In the event of a delay in such refund, interest at the rate of 15% per annum is to be paid for the period of delay.


ii. Base Issue Size: In any public issue of debt securities, the base issue size is required to be a minimum of INR 100 crore.


iii. Retention Of Over-Subscription Limit: Currently, the SEBI (Issue and Listing of Debt Securities) Regulations, 2008 (‘SEBI ILDS Regulations’) do not specify any maximum cap on the retention of over-subscription in respect of public issue of non-convertible debentures (‘NCDs’). Now, pursuant to the Public Issue Circular, issuers will be permitted to retain the over-subscription money up to the maximum of 100% of the base issue size or any lower limit as specified in the offer document.


iv. Disclosure On “Objects Of The Issue”: Issue of NCDs are required to provide granular disclosures in their offer document, with regards to the “Objects of the Issue” including the percentage of the issue proceeds earmarked for each “object”. Further, the amount earmarked for “General Corporate Purposes”, cannot exceed 25% of the amount raised by the issuer in the proposed issue. Non-banking financial companies (‘NBFCs’) are required to make additional disclosures in their offer document including the details of the lending done by them out of the issue proceeds of previous public issues.


v. Additional Disclosures: Issuers are required to make disclosures in accordance with the disclosure requirements as specified in the 1956 Act, the 2013 Act and the SEBI ILDS Regulations.


SEBI has, at a meeting of the board of SEBI (‘Board’) on June 19, 2014, approved the following reforms to the primary market. Detailed guidelines / amendments in respect of the same are awaited:


i. Minimum Public Shareholding Threshold Under Rule 19(2)(b) Of Securities Contracts (Regulation) Rules, 1957 (‘SCRR’): SEBI has proposed the following amendments to the Ministry of Finance with respect to the SCRR:


    • the minimum offer to the public by way of an Initial Public Offering (‘IPO’) should be the lower of 25% or ¤ 400 crore for companies with a post IPO capitalisation of less than INR 4,000 crore and consequently, in case of dilution of less than 25%, the minimum public shareholding threshold of 25% to be achieved within three years of listing; and
    • Public sector undertakings shall be required to achieve and maintain the minmum public shareholding threshold of 25% within a period of three years.


ii. Increasing The Investment Bucket For Anchor Investor: The amount of equity shares reserved for anchor investors in a public offering will be increased from 30% of the portion earmarked for qualified institutional buyers’ to 60% of such portion.


iii. Eligibility Of Shares For Offer For Sale In An IPO With Respect To Bonus Issues On Shares Held For More Than A Year: SEBI has approved the proposal to permit an offer for sale of bonus shares issued in the year, prior to filing of a draft offer document with SEBI. This would be subject to such bonus shares being issued (a) with respect to shares held for a period of more than one year, and (b) out of free reserves or the share premium balances of the relevant company.


iv. Amendments To Regulations Governing The Preferential Issue Norms: SEBI has approved certain amendments in various regulations relating to pricing of Qualified Institutional Placements.


v. Expanding The Framework Of Offer For Sale Of Shares Through The Stock Exchange (‘OFSSE’) Mechanism: SEBI has approved the following modifications to the existing OFSSE mechanism:


    • a minimum of 10% of the offer size shall be reserved for retail investors, i.e., for investors bidding for amounts less than INR 2,00,000. If this category is not fully utilized, the unutilized portion may be offered to other investors;
    • a discount may be offered to retail investors, in accordance with such framework, as may be specified from time to time;
    • non-promoter shareholders holding in excess of 10%, or such percentage as may be specified, shall be eligible to use the OFSSE mechanism; and
    • the OFSSE mechanism shall be made available for shareholders of the top 200 companies in terms of market capitalization.


vi. SEBI (Research Analyst) Regulations, 2014: SEBI has approved the draft SEBI (Research Analyst) Regulations, 2014 (“Research Analyst Regulations’), the salient provisions / requirements of which are set out below:


    • registration and regulation of individual research analysts and entities engaged in: (a) issuance / publication of research reports, research analyses or who provide research reports; (b) recommend “buy / sell / hold” with respect to a security; and (c) recommend on public offers such as brokerage houses, merchant bankers, proxy advisors, etc.;
    • requirements relating to experience, qualification, certification and capital adequacy for an individual person or an entity to act as a research analyst;
    • requirements to foster objectivity and transparency in research and provide investors with more reliable and useful information to facilitate informed decisions;
    • requirements in relation to establishing and maintaining written internal policies, and control procedures governing the dealing and trading by any research analyst;
    • limitations on trading by research analysts;
    • requirements in relation to compensation of research analysts.


Further, SEBI has clarified that: (a) investment advisers, credit rating agencies, portfolio managers, asset management companies and fund managers of alternative investment funds or venture capital funds shall not be required to be registered under the Research Analyst Regulations; and (b) internal communications (not disseminated to current or prospective clients) and periodic reports or other communications prepared for unit holders of mutual funds or alternative investment funds or clients of portfolio managers and investment advisers are not included within the definition of ‘research report’. The Research Analyst Regulations will come into force on the 90th day from the date of its publication in the Official Gazette.




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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