Regulatory Framework Governing Gifts to Shareholders: In corporate practice, companies have historically expressed appreciation towards their shareholders through souvenirs, coupons or other forms of small tokens. This was particularly common when physical shareholder meetings were regularly conducted prior to the COVID period in certain Indian promoter operated companies.

A frequently asked question is whether companies are permitted to distribute gifts to shareholders? The position under law is fact sensitive and not absolute. However, the regulatory framework places certain restrictions, particularly where gifts are distributed at or in connection with a general meeting, as such practices may raise concerns regarding influence on shareholder voting.

Accordingly, it becomes important to understand the regulatory position under the Companies Act, 2013 read with Secretarial Standard-2 on General Meetings.

Section 118(10) of the Companies Act, 2013 requires companies to comply with the Secretarial Standards issued by the Institute of Company Secretaries of India and Clause 14 of Secretarial Standard-2 provides that:

“No gifts, gift coupons, or cash in lieu of gifts shall be distributed to members at or in connection with the meeting.”

The intent behind this provision is rooted in corporate governance considerations. Distribution of gifts at the time of a general meeting may give rise to a perception that shareholders are being influenced while exercising their voting rights.

At the same time, the Guidance Note -2 on General Meetings issued by The Institute of Company Secretaries of India, to the aforementioned clarifies that certain practical aspects which are to be considered for companies are:

• The restriction primarily applies to gifts distributed at the meeting or in connection with the meeting.
• One of the key concerns is that such distribution may benefit only those shareholders who physically attend the meeting.
• Any benefit provided with the intention of influencing the decision of members may also fall within the scope of a prohibited gift.

However, the guidance also clarifies that certain practices would not be treated as prohibited gifts. These include provision of tea, coffee, snacks or light refreshments as a matter of courtesy at the meeting venue.

Regulatory Interpretation in Practice: A relevant regulatory example can be seen in the order passed by the Regional Director (Southern Region) in the matter of Madras Fertilizers Limited AGM Gift Card Case. In this matter, the company had issued SBI gift cards to minority shareholders during an AGM conducted through video conferencing. The company’s explanation was that the gift cards were provided in lieu of refreshments that would ordinarily have been served during a physical AGM.

Since the meeting was conducted during the COVID period, the company extended the gesture as a substitute for the refreshments that could not be provided in a virtual meeting. However, the authorities held that the company had violated Clause 14 of Secretarial Standard-2 on the basis that the gift cards were distributed in connection with the AGM.

Concerns Raised from a Governance Perspective: The Ministry of Corporate Affairs has also noted instances where companies distributed gifts, coupons or other benefits during AGMs. It was observed in certain representations that, in some cases, shareholders appeared more interested in collecting gifts or coupons than participating in the actual proceedings of the meeting. Concerns were also raised that such practices could dilute discussion on agenda items and proposed motions.

The Ministry emphasised that companies should refrain from distributing gifts or inducements during AGMs and that only light refreshments as a matter of courtesy may be provided. The underlying objective of this position is to ensure that the integrity of shareholder participation and voting is preserved.

Reading the Position: From the above, it can be understood that the restriction is not on gifting per se, but on gifting which is linked to the conduct of a general meeting.

The concern primarily appears to be on timing of the benefit; linkage with the meeting; and possibility of influence on shareholder decision making.

At the same time, it is also relevant to note that benefits which are extended uniformly and not linked to the meeting may not attract the same level of regulatory concern.

What is Allowed: While Secretarial Standard-2 restricts distribution of gifts in connection with meetings, it does not mean that companies are completely prohibited from extending benefits to shareholders.

Key compliance considerations from a practical standpoint, companies should keep the following aspects in mind:

• Gifts should not be distributed at or in connection with an AGM;
• Any benefit should not be linked to attendance, participation, or voting at a meeting;
• Promotional offers or coupons should be uniformly available to all shareholders;
• The purpose of any benefit should remain corporate goodwill rather than influencing shareholder decisions.

Intent Behind Allowing and Restricting Certain Practices: The distinction appears to be based on preserving the integrity of shareholder meetings. While companies are allowed to engage with shareholders and extend goodwill gestures, the law seeks to ensure that such gestures do not have any bearing, direct or indirect, on shareholder participation or voting at a general meeting.

Accordingly, what is restricted is not the act of gifting itself, but the possibility of such gifting being perceived as an inducement.

Conclusion:

The regulatory framework does not prohibit companies from expressing appreciation to their shareholders. However, it is important that such gestures remain clearly separated from the conduct of shareholder meetings and the exercise of voting rights.

The post Gifting to Shareholders – Courtesy or an Inducement in Disguise? first appeared on MMJC.

A. The Case of Coffee Day Enterprises Limited- Non-recognition of finance cost:

The SEBI Adjudication Order in the matter of Coffee Day Enterprises Limited (CDEL) serves as a stark reminder that internal certifications and affirmations, even those that never leave the organization’s walls, carry immense legal weight.

While certain documents (like financial results) are filed directly with Stock Exchanges, many critical affirmations are addressed internally to the Board of Directors, Audit Committee, or Compliance Officer as per the requirement of law. The CDEL case highlights that these internal “checks” must be handled with the same level of care as public filings, as they form the legal foundation upon which the integrity of the entire reporting system rests.

In the present matter, CDEL failed to recognize interest expenses on its borrowings based on the management’s expectations/ confidence for a future waiver and the assumption that providing for such interest would be misleading. This constituted a failure to adhere to Ind AS requirements for the preparation of financial statements and a failure to fulfil disclosure obligations.

The statutory auditors had highlighted this issue in audit qualifications in the reports for FY 2022-23 and 2023-24.

“Expectation” vs. Accrual:

The CDEL Order emphasizes that signatories must exercise “utmost care, skill and diligence” when providing these affirmations.

• Accrual Basis (Ind AS 1): Entities must strictly adhere to the accrual basis of accounting.

• Derecognition Criteria (Ind AS 109): A financial liability can only be removed from the balance sheet when it is extinguished, meaning the obligation is legally discharged, cancelled, or expires. Mere “negotiations” for a waiver do not meet this legal threshold.

• The Transparency Myth: CDEL argued that non-recognition of interest was transparently disclosed in the ‘Notes to Accounts’. SEBI clarified that disclosure is not a substitute for compliance. An internal certification stating that financials are compliant cannot be justified by a footnote that simultaneously admits to a departure from accounting standards.

B. The Case of Golden Tobacco Limited- Diversion through Subsidiaries:

The recent SEBI Adjudication Order in the matter of Golden Tobacco Limited (GTL) further reinforces these principles, particularly regarding the role of the CFO in certifying financials.

In this case, GTL advanced approximately Rs. 17,517.57 lakhs to its wholly owned subsidiary, Golden Realty Infrastructure Ltd (GRIL), purportedly for land development rights.

SEBI’s investigation revealed a complex web of fund transfers:

• Conduit Mechanism: GRIL, which had no commercial substance or revenue, acted as a conduit, transferring the majority of these funds to WGF Financial Services Ltd and General Exports and Credit Limited.

• Ultimate Beneficiaries: From these intermediaries, funds were further diverted to various promoter-related entities.

The CFO’s Accountability:

Similar to the CDEL case, the CFO of GTL was held liable for violating Regulation 17(8) and 33(2)(a) of SEBI (LODR) Regulations, 2015.

The CFO submitted in his reply that the decisions to grant advances were made by the Board before his appointment and that he merely followed management instructions. He claimed he was merely an employee working under the guidance of the Managing Director and was never part of the Board or the decision-making process regarding these advances.

He further contested that his salary did not change after his promotion to CFO and that there was no mens rea (guilty intention) on his part. He asserted that he issued the certifications in good faith, following the instructions of the management to save his employment.

SEBI concluded:

• Statutory Liability: SEBI ruled that the violation pertains to the act of certifying the financial results during his tenure. Even if the funds were transferred earlier, his signature affirmed that the current financial statements (FY 2015-16 to FY 2020-21) were “true and fair” despite the ongoing diversion.

• Irrelevance of Intent: The absence of mens-rea (guilty mind) or the fact that an employee followed orders does not absolve an officer from the breach of civil obligations under securities law.

• Misrepresentation: GTL continued to show these advances as outstanding assets in its annual reports for over a decade (FY 2009-10 to FY 2020-21), even though the funds had been diverted and the development projects were never approved by the Delhi Development Authority (DDA).

SEBI concluded that the CFO is mandated by law to ensure financial results do not contain false or misleading statements. Relying on “management instructions” does not absolve the officer of this duty.

C. Internal Affirmations: Substantive Obligations, Not Administrative Paperwork:

A primary takeaway from both the CDEL and GTL matters is that internal certifications, such as those issued under Regulation 17(8) of LODR, are not mere procedural formalities.

• The Responsibility of Integrity: These internal declarations affirm the integrity of financial systems. In CDEL, officials issued certifications despite failing to accrue interest expenses exceeding ₹489 crores. In GTL, the CFO certified financials while funds were being diverted to promoter-related entities through a subsidiary which resulted into misrepresentation as stated above.

• Personal Liability: SEBI held that these officers failed to ensure the integrity of reporting systems, resulting in personal penalties. Addressing an affirmation internally does not shield an officer from regulatory scrutiny if that affirmation is fundamentally flawed.

D. List of certifications:

Below is the illustrative list where such certifications by CEO/CFO or Board of Directors are required under LODR and Act:

E. Conclusion

The matters clearly emphasised that internal certifications may lose credibility where they are contradicted by explicit observations or qualifications recorded by statutory auditors, potentially raising concerns as to the robustness of the underlying financial reporting framework.Further, the burden may rest on the such official, CEO/ CFO etc, to demonstrate that reasonable care, due diligence, and independent verification were exercised prior to issuing such certifications. Every certification required under LODR or the Act must move beyond a “checkbox” approach. Ensuring exercise of professional scepticism is an essential.

 Coffee Day Enterprises Limited: https://www.sebi.gov.in/enforcement/orders/mar-2026/adjudication-order-in-the-matter-of-financial-mis-statements-of-coffee-day-enterprises-limited_100080.html 

and Golden Tobacco Limited: https://www.sebi.gov.in/enforcement/orders/apr-2026/adjudication-order-in-the-matter-of-golden-tobacco-limited_101125.html 

 Abbreviations:

SEBI- The Securities Exchange Board of India

LODR- Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 

CEO- Chief Executive Officer

CFO- Chief Financial Officer

Ind AS- Indian Accounting Standards

FY- Financial Year

CSR- Corporate Social Responsibility

RPT- Related Party Transactions

The post The Critical Weight of Internal Affirmations: Lessons from the SEBI Adjudication Orders first appeared on MMJC.

INTRODUCTION

Capital market does a very important function in any economy, that is distributing capital to most deserving enterprises. In journey of India towards Viksit Bharat ensuring that capital is distributed wisely is very vital aspect. Securities and Exchange Board of India [SEBI] has been taking path breaking steps in that direction. And in this journey SEBI has been relying on Company Secretaries as very important stakeholder.

There are following trends –

1. Ease of raising funds
2. Ease of compliance and disclosures
3. Strengthening governance
4. Curb wrong companies getting capital market access
5. Tight enforcement

Ease of raising funds and discovery of market price

Over last four years [‘2021-22 till 2023-24’], SEBI could successfully reduce the time taken for listing in public issue from T+6 days to T+3 days, where ‘T’ denotes date of closures of the issue[1]. Trade settlement days brought down from T+2 to T+0 in phased manner[2]. As a result, total number of companies raising funds via Initial Public Offer [‘IPO’] increased from 55 in 2020-21 to 272 in 2023-24 in last four years[3] and total market capital of Indian listed companies raised from ₹ 29,365,732.90 as on March 2022 to ₹441,83,829.51 as on March 2025[4].

(Image 1: Number of IPOs and Funds Raised from year 2020-21 to 2023-24)

Total number of days for non-fast track rights issue got reduced from 317 days to 23 as a result total 40+ companies came out with rights issue and could raise ₹ 9303 crore in a span of 65 days. This is a record.

In last 7 years number of people penalised under Securities and Exchange Boad of India [Prohibition of Insider Trading] Regulation, 2015 [‘SEBI PIT’] has gone close to 500 out of that around 130+ have been debarred from capital market, levied penalty of ₹ 600 crore + and many CXOs had to compromise their position. These enforcement and changes in law has contributed for improvement in hygiene of secondary market transaction and overall improvement of healthy price discovery mechanism.

Collectively these initiatives contribute eliminating or minimising any undue interference in price discovery and thereby ensuring right distribution of capital to deserving companies. This clearly indicates that capital raise, capital distribution and capital deployment all of it has increased by multi times and it has resulted in wealth creation for 12.5 crore investors in India[5].

This clearly indicates that company secretaries contributing to IPO/ Rights Issue / Employee Stock Option Plan [‘ESOP’] will have great opportunity. Practising Company Secretaries [’PCS’] and company secretaries in employment both will have great area of specialisation in this. Transformation of company from unlisted to listed is a challenging step and therefor professionals helping companies to achieve this seamlessly will have great opportunity to contribute. And helping listed companies to have robust mechanisms to ensure adherence to SEBI PIT regulations is equal opportunity to contribute in this endeavour of SEBI.

Wrong Companies 

Though we saw some instances like Gensol Engineering Ltd, overall number of such cases have seen decline in numbers. SEBI and stock exchanges have returned many offer documents in last few years to ensure basic hygiene about companies approaching capital market. One should not ignore these efforts which have contributed to overall capital market development and improvement in quality of companies planning for IPO.

In last few years we have also seen eligibility norms for Smal and Medium Enterprises Initial Public Offer [‘SME IPO’] undergoing major change and there by resulting in IPO size of SME IPO getting raised from ₹5 – ₹10 crore to more than ₹25 crore in recent times. On an average, companies making higher profits and more sustainability are approaching for SME IPO. Though this is perceived not the good news for smaller SMEs, it helps market reach equilibrium. Recently SEBI has done lot of changes in Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015 [‘SEBI LODR’] to make many governance provisions appliable to even smaller companies. Though this may be perceived as higher compliance norms, it is important in overall scheme of things of building trust of retail investors in capital market.

Company Secretary both in employment or practice [‘CS’] has great opportunity for preparing companies to knock the door of capital market and unlock wealth. CS is a guide for corporates to prepare for IPO, and opportunity in preparing companies is equally valuable as helping companies to go for IPO. CS also shoulders a responsibility to warn promoter and protect them from going in wrong direction.

Strengthening Disclosure Requirements

In last 3 years 26 changes have happened in regulation 30 and schedule III of SEBI LODR. 11 consultation papers got released from SEBI in last three years to listen to ecosystem and market towards strengthening of disclosures under SEBI LODR. Industry Standards Forum [ISF’] released 3 to 4 documents to strengthen disclosure standards followed by Indian inc.

This disclosure requirements might have created information overload for some time, but over a period, probably, it will help to enhance maturity about understanding of company amongst investors and culture of compliance will get deeper, wider. This will be a game changer and also build trust amongst investors about corporates.

In last one-year overall ease towards disclosures has enhanced as a result of single window upload facility to companies [when it comes to disclosure of details on stock exchange is concerned]. Overall consolidation of disclosure timings and curating data about listed companies of regulators portal brings lot of ease both to corporates and investors. It is a role of CS to ensure that this ease is communicated well to the important stakeholders.

Disclosure is a compliance, but it is essentially the tool for investor to take informed decision and opportunity for corporate to get stakeholders alignment. Therefore, disclosure should not be considered as burden but a platform and an opportunity for getting investors alignment and also to distinguish itself with others in market.

Opportunities for CS and PCS

SEBI wide amendment dated December 12, 2024, to SEBI LODR has validated that compliance officer should be at one level below Board of Directors and thereby raising bar of company secretaries who are functioning as compliance officer in listed companies. Same amendment has also placed secretarial auditor at par with statutory auditors in many parameters. This will have far reaching implications and will strengthen the position of CS in corporate and PCS in overall landscape of governance in India. Now it is our responsibility to invest in self and occupy that position to serve best interest of nation.

Conclusion .

Overall, width and depth of capital market is growing. Many investors are betting on Indian capital market and Indian enterprises. Indian enterprises are also coming forward to take them to next orbit and unlock value. Role CS is unique in this value unlocking and good governance journey. Next 25 years are going to be crucial and game changer for this profession. Let’s try to optimise it and contribute fullest

[1] https://www.sebi.gov.in/legal/circulars/aug-2023/reduction-of-timeline-for-listing-of-shares-in-public-issue-from-existing-t-6-days-to-t-3-days_75122.html

[2] https://www.sebi.gov.in/media-and-notifications/press-releases/sep-2024/sebi-board-meeting_87154.html  

[3] https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=4&ssid=80&smid=101

[4] https://www.bseindia.com/markets/equity/EQReports/allindiamktcap.aspx

[5] https://www.moneycontrol.com/news/business/markets/retail-power-retail-holdings-rise-more-than-10x-over-the-last-decade-12901840.html

The post Reflection on Regulatory Changes in Capital Market and Role of Company Secretary first appeared on MMJC.

Background

With the rapid growth of social media usage in the securities market, instances of misleading and unverified content have also increased. Investors often find it difficult to distinguish between content posted by SEBI-registered entities and that circulated by unregistered persons. This often results into investors losing their hard earned money at the hands of fraudsters. Taking cognisance of this SEBI has issued a circular dt: February 26, 2026 [‘February circular’] in this regard.

In this article we will try to understand the applicability of this circular, pre-dominantly to Infrastructure Investment Trusts (InVITs), Real Estate Investment Trusts (ReITs) and the compliances to be undertaken by them.

Applicability

As per clause 3 of the February circular, it is applicable to all persons regulated by the SEBI as defined under explanation 1 to regulation 16A of SEBI Intermediaries Regulations 20081. As per this definition, this circular is applicable to all market intermediaries, InVITs, ReITs as well as to the trustees and investment managers of INVITs and REITs.

Importantly, the requirements also extend to agents of such regulated entities, including mutual fund distributors and other authorised intermediaries.

However, a point worth noting is that this circular is silent about applicability to individuals like directors, KMPs, compliance officers etc. associated with the entities listed above.

Key Requirements

SEBI has mandated that regulated entities and their agents must prominently disclose their SEBI registered name and registration number:

• On the home page of their social media handles; and

• At the beginning of each video or content related to the securities market.

In cases where an entity holds multiple SEBI registrations, a web link listing all registrations must be provided on the home page, and details of that particular registration, in capacity of which the content is being shared, must be disclosed at the beginning of each specific content.

In case of agents, the additional requirement is that, they must disclose their own registration details in the manner specified above, and in addition to that, they should

also disclose the registration details of that regulated entity for whom they are acting as agent.

This disclosure requirement applies to all securities market-related content posted on social media platforms such as YouTube, Instagram, Facebook, WhatsApp, X, LinkedIn, Telegram, Reddit and similar platforms, including content shared in closed groups. One point worth noting here is that, The list of social media platforms provided in the circular is illustrative and the disclosure requirements can also apply to other social media platforms not listed in the circular.

For example,

If an entity is registered as INVIT and it is desirous of posting any securities market related content on any of its social media handle, then the home page of that entity’s social media account as well as the content itself should contain the registered name and registration number of that INVIT. Further, if the investment manager is posting any security market related content on its own social media account in the capacity of agent of INVIT, then it has to disclose its own registration details as well as the details of the INVIT on whose behalf the content is being posted.

Effective Date

The provisions of the circular will come into effect from May 1, 2026, and will apply to all securities market related content uploaded on or after that date.

Conclusion

This circular reinforces SEBI’s focus on transparency and investor protection in the digital space. Regulated entities, including InvITs and REITs, must now align their social media practices with these disclosure norms to ensure clear identification of authentic market participants and to mitigate the risk of misuse of their names on online platforms.

The post SEBI Mandates Disclosure of Registration Details on Social Media Platforms by SEBI registered entities. first appeared on MMJC.

A. Background:

1. The Securities and Exchange Board of India (SEBI), in coordination with the Industry Standards Forum (comprising ASSOCHAM, CII, and FICCI), had issued a circular dated June 26, 2025, prescribing Industry Standards on “Minimum Information to be provided to the Audit Committee and Shareholders for approval of Related Party Transaction (RPT)”.

2. Industry standards on RPT substituted Para 4 under Part A of Section III-B and Para 6 under Part B of Section III-B of the Master Circular dated November 11, 2024.

3. Now, SEBI, vide Circular No. SEBI/HO/CFD/CFD-PoD-2/P/CIR/2025/135 dated October 13, 2025 (“said Circular”), further amended Section III-B of the Master Circular and Paragraph 7 of the June 26, 2025 Circular, to introduce threshold-based relaxation in furnishing minimum information by substituting the corresponding paragraphs under the relevant circulars as mentioned above.

4. The said circular shall be applicable with immediate effect.

5. The provisions shall not apply to the following categories of listed entities:

• having only non-convertible securities listed or
• High value debt listed entities or
• listed entities 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) or
• listed entity on SME exchange (except where paid up equity share capital exceeding Rupees 10 crore and net worth exceeding rupees 25 crore). 

B. Amendment: Threshold-based relaxation:

1. For any RPT (individually or cumulatively during the financial year, including ratified transactions):
If the value does not exceed 1% of annual consolidated turnover of the listed entity or ₹ 10 crore, whichever is lower, the entity shall furnish “Minimum Information” to the Audit Committee and Shareholders for approval of RPT in the format as specified in Annexure 13A to the said circular.

2. Exemption threshold of Rupees One Crore as specified in Para 3(c) of the RPT Industry Standards shall continue to apply.

3. Listed entities shall follow the format as prescribed in the said circular and RPT Industry Standards, as may be applicable, to ensure compliance with Part A and Part B of Section III-B of the Master Circular read with Regulation 23(2), (3) and (4) of LODR Regulations.

C. Impact of the amendment:

If an RPT is individually or cumulatively taken together during the financial year, including ratified transactions is:

 Note:

1. Annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity
2. Minimum Information shall be provided as per the said circular for approval of RPT only and not for review of any RPT in accordance with regulation 23(3) of LODR.
3. Transaction with a related party whether individually or taken together with previous transactions during a financial year, i.e. from April 2025.
   
   

In respect of listed entities with an annual consolidated turnover of ₹1,000 crore or more, even where the value of related party transaction(s) is below ₹10 crore, the provisions of the said circular shall be applicable, as detailed in the table below.

D. Minimum information to be provided as per Annexure 13A to the circular:

• To Audit Committee
  1. Type, material terms and particulars of the proposed transaction;
  2. Name of the related party and its relationship with the listed entity or its subsidiary, including nature of its concern or interest (financial or otherwise);
  3. Tenure of the proposed transaction (particular tenure shall be specified);
  4. Value of the proposed transaction;
  5. The percentage of the listed entity’s annual consolidated turnover, for the immediately preceding financial year, that is represented by the value of the proposed transaction (and for a RPT involving a subsidiary, such percentage calculated on the basis of the subsidiary’s annual turnover on a standalone basis shall be additionally provided);
  6. If the transaction relates to any loans, inter-corporate deposits, advances or investments made or given by the listed entity or its subsidiary:
     1. details of the source of funds in connection with the proposed transaction;
     2. where any financial indebtedness is incurred to make or give loans, intercorporate deposits, advances or investments,
        • nature of indebtedness;
        • cost of funds; and
        • tenure;
     3. applicable terms, including covenants, tenure, interest rate and repayment schedule, whether secured or unsecured; if secured, the nature of security; and
     4. the purpose for which the funds will be utilized by the ultimate beneficiary of such funds pursuant to the RPT.
     5. Justification as to why the RPT is in the interest of the listed entity;
     6. A copy of the valuation or other external party report, if any such report has been relied upon;
     7. Percentage of the counter-party’s annual consolidated turnover that is represented by the value of the proposed RPT on a voluntary basis;
     8. Any other information that may be relevant.

Note: The requirement of disclosure in Sr. no. 6.1 and 6.2 above, is not applicable to listed banks / NBFCs/ insurance companies/ housing finance companies.

• To Shareholders (as a part of explanatory statement of notice)
  • A summary of the information provided by the management of the listed entity to the audit committee as specified in paragraph 4 of this Section;
  • Justification for why the proposed transaction is in the interest of the listed entity;
  • Where the transaction relates to any loans, inter-corporate deposits, advances or investments made or given by the listed entity or its subsidiary, the details specified under para 4(f) above;
  • A statement that the valuation or other external report, if any, relied upon by the listed entity in relation to the proposed transaction will be made available through the registered email address of the shareholders;
  • Percentage of the counter-party’s annual consolidated turnover that is represented by the value of the proposed RPT, on a voluntary basis;
  • Any other information that may be relevant.

The post SEBI Eases Minimum Information Requirements for RPT Approvals first appeared on MMJC.

Introduction

For several years, pledge of shares in dematerialised form has operated within a largely system-driven framework under the Depositories Act, SEBI regulations, and depository bye-laws. The regulatory focus has predominantly been on the mechanics of creation and invocation within the depository system, with limited explicit emphasis on the broader contractual rights and obligations that govern a pledge under general law.

The SEBI has issued a circular dated February 05^th, 2026[1] (“said circular”) marks a clear and deliberate shift in approach. This move aims to align depository processes with the Indian Contract Act, 1872 during the invocation of pledges.

Historical Context

Early SEBI and Depository Communications (2010 onwards)

As early as 2010, SEBI and depositories were concerned with misuse of the pledge concept:

• off-market transfers were being labelled as “pledge”; and
• ownership was being altered without following the depository framework.

Accordingly, SEBI and depositories (NSDL/CDSL) clarified that:[2]

• pledge of demat securities must be created only through the depository system; and
• any off-market transfer results in change of beneficial ownership and cannot be treated as pledge.

The emphasis was squarely on form, process, and system integrity.

Margin Pledge Reforms (2020)

SEBI’s February 2020 margin pledge and re-pledge reforms brought greater transparency and strengthened investor protection, particularly in broker–client arrangements.

While these reforms streamlined the operational aspects of pledging within the depository system, they did not expressly require reasonable notice before enforcement or explicitly recognise the pledgor’s statutory right of redemption under the Indian Contract Act, 1872.

The application of the Contract Act was understood in principle, but it was not formally incorporated into the depository framework.

Existing procedure in case of invocation

The existing procedure followed in case of invocation as per FAQs published by Central Depository Services (India) Limited (“CDSL”) provides that, “the pledgee may instruct the DP to invoke the pledge by submitting Invocation Request Form’ (IRF). On execution of this instruction, the securities are moved from Pledgor’s account to the pledgee’s account. Invocation does not require any confirmation from the pledgor. Pledgor is informed of the movement of securities by his DP.”

National Securities Depository Limited (“NSDL”) had published FAQs on Pledge which provides that, “If the loan is not repaid, the pledgee, after giving notice to the pledgor as per the terms of the agreement, may instruct its DP to invoke the pledge by submitting the “Pledge Form” with a tick on “Invoke Pledge”. On execution of this instruction, the securities are transferred into the pledgee’s account. This does not require any confirmation from the pledgor.”

Hence, it is seen that in practice Pledgee (lendor) was intimating the pledgor (borrower) as per terms of the agreement or DP was informing the pledgor of the movement of securities in case of invocation of pledge. There was no express provision which required intimation to be given to pledgee in case of invocation.

What has changed as per the SEBI Circular dated February 05^th, 2026

SEBI has now amended the Master Circular for Depositories vide the said circular, by inserting paragraphs 4.13.3 to 4.13.5[3], with effect from April 06^th, 2026.

• Express Undertaking to Comply with the Indian Contract Act

Depositories are required to include in their Pledge Request Forms a clear undertaking from the pledgee that reasonable notice will be given to the pledgor and that Sections 176[4] and 177[5] of the Indian Contract Act will be complied with.

In addition, both the pledgor and pledgee must undertake to abide by the Contract Act, the Depositories Act, SEBI regulations, circulars and applicable bye-laws.

This converts what was earlier implicit legal applicability into an explicit, enforceable undertaking.

• Standardised Pledge Request Form

Till now CDSL and NSDL were maintaining two versions of Pledge request form respectively. Vide the said circular Depositories are mandated to maintain a standardised format of the Pledge Request Form.

• Mandatory Intimation on Invocation

At the time of invocation of pledge, the depository must send an intimation to both the pledgor and pledgee confirming that the pledge has been invoked and that the pledgee has been recorded as the beneficial owner under the DP Regulations.

Impact of the said circular:

• By expressly incorporating Sections 176 and 177 of the Indian Contract Act into the depository framework, the circular clarifies that a default by the pledgor does not automatically extinguish the pledgor’s rights.

• Invocation of pledge cannot be treated as equivalent to sale, and the statutory right of redemption as per Indian Contract Act continues until the actual sale of the securities.

• Invocation must be preceded by reasonable notice, and any sale carried out without adherence to Contract Act principles may be open to legal challenge.

Conclusion

The said circular expressly and formally aligns the depository pledge mechanism with the Indian Contract Act. It reinforces that invocation of pledge is a legal enforcement action, subject to notice and redemption rights, and not merely a system-driven transfer of securities.

[1] https://www.sebi.gov.in/legal/circulars/feb-2026/creation-invocation-of-pledge-of-securities-through-depository-system-_99546.html

[2] Page no 90 of SEBI master circular for Depositories https://www.sebi.gov.in/legal/master-circulars/dec-2024/master-circular-for-depositories_89245.html

[3] Page no 2- https://www.sebi.gov.in/legal/circulars/feb-2026/creation-invocation-of-pledge-of-securities-through-depository-system-_99546.html

[4] 176. Pawnee’s right where pawnor makes default.—If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale. If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.

[5] 177. Defaulting pawner’s right to redeem.—If a time is stipulated for the payment of the debt, or performance of the promise, for which the pledge is made, and the pawnor makes default in payment of the debt or performance of the promise at the stipulated time, he may redeem the goods pledged at any subsequent time before the actual sale of them2 ; but he must, in that case, pay, in addition, any expenses which have arisen from his default.

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