Updates on SEBI Board Meeting dated August 6, 2021 - MMJC

SEBI at its Board Meeting held on August 6, 2021 has prima facie agreed to following amendments:

1. New SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021:

SEBI has approved the merger of SEBI (Issue of Sweat Equity) Regulations, 2002 (“Sweat Equity Regulations”) and SEBI (Share Based Employee Benefits) Regulations, 2014 (“SBEB Regulations”) into a single regulation called the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.

While approving the merger into a single regulation, certain amendments have also been approved. Some of the key proposals approved by SEBI are as follows:

1. The companies will be allowed to provide share based employee benefits to employees, who are exclusively working for such company or any of its group companies including its subsidiary or its associate. [In the earlier Regulations, employees working for group companies were not covered].
2. The companies will have flexibility in switching the administration of their schemes from the trust route to the direct route and vice versa with the approval of the shareholders, subject to the condition that the switch is not prejudicial to the interest of the employees. [In the earlier Regulations, if the scheme was to be implemented through a trust, the same had to be decided upfront at the time of taking approval of the shareholders for setting up the schemes].
3. The time period for appropriating the unappropriated inventory of the trust has been extended from existing 1 year to 2 years subject to the approval of the Compensation/ Nomination and Remuneration Committee for such extension.
4. It has been decided to dispense with the minimum vesting period and lock-in period for all share benefit schemes in the event of death or permanent incapacity (as defined by the company) of an employee. [In the earlier Regulations, all the benefits would vest in the legal heirs or nominees of the deceased employee and remaining vesting period would continue].
5. Maximum yearly limit of sweat equity shares that can be issued by a company listed on the main board has been now prescribed at 15% of the existing paid up equity share capital within the overall limit not exceeding 25% of the paid-up capital at any time. Further, in case of companies listed on the Innovators Growth Platform (“IGP”), the yearly limit will be 15% and overall limit shall be 50% of the paid-up capital at any time. This enhanced overall limit for IGP shall be applicable for 10 years from the date of company’s incorporation

2. Amendment to SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”):

No need to give disclosures under Takeover Regulations w.e.f April 1, 2022.

SEBI has decided to do away with disclosure obligations for the acquirers/promoters, etc. pertaining to acquisition or disposal of shares aggregating to 5% and any change of 2% thereafter (under Regulation 29(1) and 29(2) respectively), annual shareholding disclosures (under Regulation 30) and creation/invocation/release of encumbrance registered in depository systems (under Regulation 31) of Takeover Regulations w.e.f. April 01, 2022. This is due to implementation of the System Driven Disclosures (“SDD”) which SEBI had been implementing in a phased manner with effect from January 1, 2016.

Under SDD, relevant disclosures are disseminated by the stock exchanges based on aggregation of data from the depositories without human intervention. The SDD for the said disclosures is already in place and runs parallel with the submission of physical disclosures under the Takeover Regulations.

The obligation for physical disclosures would be done away with effect from April 01, 2022.

3. Review of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015:

SEBI considered and approved the proposals relating to review of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 pertaining to issuers who have listed Non-Convertible Debt Securities, Non- Convertible Redeemable Preference Shares, Perpetual Debt Instruments and/ or Perpetual Non-Cumulative Preference Shares to improve transparency, rationalization and removing of redundant provisions.

4. Transition from concept of ‘Promoter’ to ‘Person in Control’

SEBI has agreed in-principle to the proposal for shifting from the concept of ‘promoter’ to ‘person in control’ or ‘controlling shareholders’ in a smooth, progressive and holistic manner.

This change is proposed in view of the changing investor landscape in India. Unlike the past, the concentration of ownership and controlling rights does not vest completely in the hands of the promoters or the promoter group. There has been a significant increase in the number of private equity and institutional investors who invest in companies and take up substantial shareholding, and in some cases, control. These changes in nature of ownership, could lead to situations where the persons with no controlling rights and minority shareholding continues to be classified as a promoter. By virtue of being called promoters, such persons may have influence over the listed entity disproportionate to their economic interest, which may not be in the interests of all stakeholders.

The shift may also have implications on laws administered by other regulators such as the MCA, RBI and IRDAI. Given that the freezing of promoter holdings is presently an important tool of enforcement in securities market, the shift would also necessitate reorientation of enforcement strategies.

5. Amendments to SEBI (Issue of Capital and Disclosure Requirements) Regulations in cases of IPO / FPO:

A. Lock in of securities with respect to Promoter and Promoter Group: Minimum Promotes contribution (i.e. 20% of post issue capital) shall be locked in for a period of eighteen months from the date of allotment in initial public offering (IPO)/further public offering (FPO) instead of three years currently and Promoter shareholding in excess of minimum promoter contribution shall be locked-in for a period of six months instead of existing one year. Both these are subject to following conditions:

a. If the object of the issue involves only offer for sale (OFS).

b. If the object of the issue involves only raising of funds for other than for capital expenditure for a project (more than 50% of the fresh issue size)

c. In case of combined offering (Fresh Issue + offer for sale), the object of the issue involves financing for other than capital expenditure for a project (more than 50% of the issue size excluding OFS portion)

B. Lock in of securities for persons other than promoter group:

a. The lock-in of pre-IPO securities held by persons other than promoters shall be locked-in for a period of 6 months from the date of allotment in IPO instead of existing 1 year.

b. The period of holding of equity shares for Venture Capital Fund or Alternative Investment Fund (AIF) of category I or Category II or a Foreign Venture Capital Investor shall be reduced to 6 months from the date of their acquisition of such equity shares instead of existing 1 year.

These changes with respect to persons other than promoter group (mentioned in point B) are not subject to any conditions like in case of changes with respect to promoters (mentioned in point A above) and shall be applicable in case of all IPOs.

SEBI Board Meeting press release dt: August 6, 2021 can be accessed at below mentioned link:

https://www.sebi.gov.in/media/press-releases/aug-2021/sebi-board-meeting_51707.html