Regulatory Updates for the month of June 2020

Legal Updates for the month of June 2020

Relaxations/ amendments issued under the SEBI (ICDR) Regulations

1. SEBI, vide circular dated June 09, 2020, has eased out the conditions related to Fast Track Further Public Offer (FPO) as contained in the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations), in view of the ongoing Covid – 19 pandemic. In ICDR Regulations, Reg 155 deals with the eligibility criteria for Fast Track Further Public Offer. The following criteria have been eased out further:

Existing  provisions	Relaxations as per the Circular
Regulation 155(c) average market capitalisation of public shareholding of the issuer is at least One Thousand crore rupees in case of public issue.	In regulation 155(c) the words ‘one thousand crore’ shall be read as ‘five hundred crore’
Existing Text: Regulation 155(h): no show cause notices have been issued or prosecution proceedings have been initiated by the Board and pending against the issuer or its promoters or whole-time directors as on the reference date; SEBI has notified more provisions under this clause vide new Amendments.	Regulation 155(h) shall be read as under: “no show-cause notices, excluding under adjudication proceedings, have been issued by the Board and pending against the issuer or its promoters or whole-time directors as on the reference date; In cases where against the issuer or its promoters/ directors/ group companies, i) a show cause notice(s) has been issued by the Board in an adjudication proceeding or ii) prosecution proceedings have been initiated by the Board; necessary disclosures in respect of such action (s) along-with its potential adverse impact on the issuer shall be made in the offer document
Existing Regulation: Regulation 155 (i) issuer or promoter or promoter group or director of the issuer has not settled any alleged violation of securities laws through the consent or settlement mechanism with the Board during three years immediately preceding the reference date;	Regulation 155 (i) shall be read as “the issuer or promoter or promoter group or director of the issuer has fulfilled the settlement terms or adhered to directions of the settlement order(s) in cases where it has settled any alleged violation of securities laws through the consent or settlement mechanism with the Board”
Existing Regulation: Regulation 155 (l) impact of audit qualifications, if any and where quantifiable, on the audited accounts of the issuer in respect of those financial years for which such accounts are disclosed in the letter of offer does not exceed five per cent. of the net profit or loss after tax of the issuer for the respective years	Regulation 155 (l) shall be read as “impact of audit qualifications, if any and where quantifiable, on the audited accounts of the issuer in respect of those financial years for which such accounts are disclosed, shall be appropriately disclosed and accounts accordingly restated, in the offer documents. Further, that for the qualifications wherein impact on the financials cannot be ascertained the same shall be disclosed appropriately in the offer documents.”

2. SEBI, vide notification in the Official Gazette dated June 16, 2020, with immediate effect has amended the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, permitting the cooling off period to make subsequent QIP from the date of prior QIP made by an Issuer to two weeks instead of six months.

3. SEBI, vide notification in the Official Gazette dated June 22, 2020, has amended the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, to insert new 164A which deals with the pricing of preferential issue of shares of companies having stressed assets. With the said amendment, SEBI has –

a. enabled the companies having stressed assets to raise additional capital which was earlier not possible,

b. increased the disclosure requirements,

c. restricted the participation of certain categories of entities in the preferential issue,

d. restricted the use of proceeds of such preferential issue,

e. increased the monitoring of the use of such proceeds,

f. mandatory lock-in period of 3 years from the last date of trading approval of such shares,

g. increased responsibility of the statutory auditor and the audit committee to ensure that the compliance with the provisions of this regulation is met at the time of dispatch of notice for general meeting proposed for passing the special resolution and at the time of allotment.

Relaxations/ amendments issued under SEBI (SAST) Regulations

4. SEBI, vide notification in the Official Gazette dated June 16, 2020, with immediate effect has amended the provisions related to the SEBI (Substantial Acquisition of Shares and Takeovers) 2011 allowing creeping acquisition by a promoter pursuant to preferential issue of equity shares beyond 5% but up to 10% of the voting rights. This relaxation has been granted for the financial year 2020- 2021 only.

5. SEBI, vide notification in the Official Gazette dated June 22, 2020, has amended the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, to insert a Regulation 10 (2B), to provide exemption from Open Offer obligation to companies raising capital via the recently added provision for preferential issue under Regulation 164A of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 to enable the companies with stressed assets to issue fresh capital. This provision would ease out the compliance burden for such companies which are already stressed.

Other Miscellaneous relaxations/ amendments by SEBI

6. For issuers, who intend to list their Non-Convertible Debentures (NCDs) / Non-Convertible Redeemable Preference Shares (NCRPS)/ Commercial Paper(s), SEBI, vide various circulars has put up a framework whereby, the issuers are required to give the audited financials in the offer document, which are not older than 6 months from the date of prospectus. Accordingly, due to the ongoing pandemic, SEBI had relaxed this provision, allowing issuers to issue and list their aforementioned debt securities upto May 31, 2020 by submitting Audited Financial Results of upto September 30, 2020. SEBI has further relaxed this condition, by allowing submission of Audited Financial Results of upto September 30, 2020, for listing of debt securities upto June 30^th 2020, vide circular dated June 08, 2020.

7. SEBI, vide circular dated June 23, 2020, has issued an operational framework to allow transactions in debt securities where redemption amount has not been paid on maturity/redemption date (referred as defaulted debt securities) and has also prescribes the obligations of Issuers, Debenture Trustee(s), Depositories and Stock Exchange(s) while permitting such transactions.

8. SEBI, vide circular dated June 24, 2020, has further extended the last date for submission of Financial Results for the Quarter and Year ended March 31, 2020 to July 31, 2020.

9. SEBI, vide circular dated June 25, 2020 has further extended the time limit for filing Annual Secretarial Compliance report by one month till July 31, 2020.

10. SEBI had earlier relaxed the requirement of the maximum stipulated time gap of 120 days between two meetings of the board and Audit Committees of listed entities for the meetings held/proposed to be held between the period December 1, 2019 and June 30, 2020. SEBI has now vide circular dated June 26, 2020, has extended this relaxation till July 31, 2020. However, the board of directors and audit committees of listed entities still need to ensure that they meet atleast four times a year.

11. Key Highlights of the Outcome of SEBI Board Meeting held on June 25, 2020

a. Pricing of preferential issues – Temporary relaxation due to COVID 19:

> Pricing norms for Preferential Allotment under Reg 164 of SEBI (ICDR) have been eased. A new set of conditions for price determination for issue of shares has been introduced. Also, it would be on the issuer to choose whether to follow the old or new pricing rules. The same has been discussed above in relaxations.

> LOCK IN period, however is increased. Instead of the current Lock In provisions (3 Years for promoter till 20% of total capital of issuer, any holdng over and above 20% would be under lock in for 1 year, for non-promoters, lock in would be for 1 year), if the issuer chooses the new pricing system, the shares so issued would be under a lock-in of 3 Years for everyone.

> The said option in pricing shall be available for the preferential issues made between July 1, 2020 and December 31, 2020

b. Amendments to Takeover Regulations:

> Acquisition through stock exchange settlement process through bulk and/or block deals shall be permitted during the open offer, subject to conditions mentioned in regulation 22(2A) of Takeover Regulations.

> In case of indirect acquisitions where public announcement of an open offer has been made, an amount equivalent to 100% of the consideration payable under the open offer must be deposited 2 working days before the date of detailed public statement. The  escrow  account  shall  be  in  the  form  of  cash  and/  or  bank guarantee.

> In case  of  delays  in  making  open  offer  attributable  to  the  acts  of  omission  or commission  of  the  acquirer, a  simple  interest  of  10%  shall  be  paid  to  all  the shareholders who have tendered the shares in the open offer.

c. Other Recommendations:

Amendments to SEBI (Prohibition of Insider Trading) Regulations, 2015 and Securities and Exchange Board of India (Settlement Proceedings) (Amendment) Regulations, 2020 have also been considered by SEBI, proper details of which have not been issued. It is anticipated that the same would be issued in near future by way of Notification in Official Gazette.

Relaxations/ amendments issued by MCA

12. MCA, vide notification dated June 5, 2020, has made the following amendments to the Companies (Share Capital and Debenture) Rules, 2014:

a. Rule 8 – Provisions regarding Startups:

– Changed the definition of “Startup” in line with the change brought in by Department of Industrial Policy and Promotion.

– Allowed a start-up company to issue sweat equity shares not exceeding fifty percent of its paid up capital up to 10 years from the date of its incorporation or registration, which was previously allowed up to 5 years only.

b. Rule 18 – Debenture Redemption Reserve (DRR) requirements eased:

– Listed NBFCs registered with RBI, Housing Finance Companies registered with National Housing Bank and other listed companies coming up with issuance of debt securities on private placement basis no more need to create DRR as provided under Rule 18.

13. MCA, vide circular has provided relaxations for reservations of name for existing and new companies and IEPF as follows:

a. For Reserved Names, which were expiring any day between 15^th March to 31^st July 2020 have been extended by 20 days beyond 31^st July 2020 in case of:

– Names reserved for 20 days for new company incorporation

– Names reserved for 90 days for new LLP incorporation/change of name.

b. For Names expiring any day between 15^th March to 31^st July 2020 have been extended by 60 days beyond 31^st July 2020 in case of:

– Names reserved for 60 days for change of name of company.

c. Resubmission (RSUB) forms:

– For both Companies and LLPs: SRNs where last date of RSUB falls between 15^th March 2020 to 31^st July 2020, additional 15 days beyond 31^st July 2020 would be allowed.

d. Extension for IEPF-5 eVerification Report:

– SRNs where last date of filing eVerification Report (for both Normal as well as Resubmission filing) falls between 15^th March 2020 to 31^st July 2020, would be allowed to file the form till 30^th September 2020.

14. MCA, vide Ordinance dated June 5, 2020, has amended the Insolvency and Bankruptcy Code, 2016, to provide relaxations to corporate debtors. The said amendment has inserted Section 10A, which restricts the filing of insolvency proceedings against any corporate debtor, for defaults arising between the period March 25, 2020 till Six months, i.e. till September 24, 2020, or such further period as may be prescribed.

However, this relaxation is not applicable for defaults already committed before March 25, 2020.

The amendment has also restricted the resolution professionals to file any application of insolvency against such default committed under Section 10A as mentioned above.

15. MCA, vide circular dated June 17, 2020 has introduced “Scheme for relaxation of time for filing forms related to creation or modification of charges under the Companies Act, 2013″ for the purpose of condoning the delay in filing of Charge forms – CHG 1 (creation of Charge) and CHG 9 (modification of Charge).

Under the scheme, the relaxation has been given with respect to the period from 1^st March 2020 to 30^th September, 2020. This period will not be counted for the purpose of the time limit of 120 days (including condonation of delay) as provided under Section 77 of the Companies Act 2013.

To be specific, for counting time limits and fees, after 29^th February, 2020, the next day to be counted is 1^st October, 2020. Therefore, the period between 1^st March and 30^th September is to be excluded.

Accordingly, the relaxations provided can be summarised as below:

where the date of creation / modification of charge is	Relaxation provided	Applicability of Fees
a.  Before 1st March 2020, but the time limit of 120 days is expiring between 1st March to 30th September 2020	If the form is not filed within 1st March and 30th September 2020, the first day after 29th February shall be reckoned as 1st October 2020 for the purpose of counting the limit of 120 days.	If the form is filed on or before 30th September, 2020, the fees payable as on 29th February 2020, shall be charged. If the form is filed thereafter, the applicable fees shall be charged after adding the number of days beginning from 1st October, 2020 and, ending on the date of filing plus the time period lapsed from the date of the creation of charge till 29th February, 2020
b.  falls on any date between 1st March to 30th September 2020 (both dates inclusive)	the first day after the date of creation / modification of charge shall be reckoned as 1st October 2020 for the purpose of counting the limit of 120 days.	If the form is filed before 30th September 2020, normal fees shall be payable. If the form is filed thereafter, the first day after the date of creation/ modification of charge shall be reckoned as 1st October, 2020 and the number of days till the date of filing of the form shall be counted accordingly for the purposes of payment of fees.

However, the Scheme is not applicable in the following cases:

(a) The time limit of 120 days has already expired prior to 1^st March 2020.

(b) The timeline for filing the form expires at a future date, despite exclusion of the time provided above (i.e from 1^st March 2020 to 30^th September 2020)

This means that the above relaxations are technically available for only those CHG-1 and CHG-9 forms where the time limit of 120 days is expiring between 1^st March and 30^th September 2020. 

c) Filing of Form CHG-4 for satisfaction of charges.

16. MCA had earlier extended the time limit for the following till June 30, 2020:

a. Creation of deposit repayment reserve for deposits maturing in 2020-21 before 30^th April 2020

b. To invest or deposit at least 15% of the amount of debentures maturing before 30^th April 2020, to create debenture redemption reserve

MCA, has now, vide Circular dated June 19, 2020, has further extended this time limit till 30^th September, 2020.

17. MCA vide notification dated June 23, 2020, has further extended the time limit for registration of existing independent directors in Data Bank upto 30^th September, 2020 (earlier 30^th June, 2020).

18. MCA, vide notification dated June 23, 2020, has further extended the time limit till September 30, 2020 (earlier June 30, 2020) which allowed restricted matters to be discussed through video conferencing or other audio visual means otherwise which are to be discussed in a physical AGM/ EGM only.