Article analyses SEBI SOP Circular dated January 22, 2020 vis-a-vis SEBI SOP Circular dated May 3, 2018.

Securities and Exchange Board of India (SEBI) has issued SOP Circular bearing reference number SEBI/HO/CFD/CMD/CIR/P/2020/12 dated January 22, 2020 (hereinafter referred to as ‘New SOP Circular‘) in supersession of the Circular bearing number SEBI/HO/CFD/CMD/CIR/P/2018/77 dated May 3, 2018 (hereinafter referred to as ‘Existing SOP Circular‘).

1. Penal Provisions covered by Existing SOP Circular and New SOP Circular

Existing SOP Circular covers 18 provisions of Listing Regulations for which penal provisions are applicable whereas New SOP Circular covers 28 provisions of Listing regulations for which penal provisions are applicable.

2. Date of Applicability of  New SOP Circular

The New SOP Circular shall come into force with effect from compliance periods ending on or after March 31, 2020. It may be noted that the existing SOP Circular would be applicable till the time New SOP Circular comes into force.

3. Newly added/ deleted Regulation(s) in the New SOP Circular

In addition to the penal provisions covered by the Existing SOP Circular, some of the additional regulations of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, have been covered in the New SOP Circular which are detailed below:

Sr. No Regulation (Added in New SOP Circular) Fine payable and/or other action to be taken for non-compliance in respect of listed entity
1 Regulation 17(1A)

Non-compliance with the requirements pertaining to appointment or continuation of Non-executive director who has attained the age of seventy five years

Rs. 2,000 per day
2 Regulation 17(2)

Non-compliance with the requirements pertaining to the number of Board meetings

Rs. 10,000 per instance
3 Regulation 17(2A)

Non-compliance with the requirements pertaining to quorum of Board meetings

Rs. 10,000 per instance
4 Regulation 20 (2A)

Non-compliance with the constitution of stakeholder relationship committee

Rs. 2,000 per day
5 Regulation 23 (9)

Non-compliance with disclosure of related party transactions on consolidated basis

Rs. 5,000 per day
6 Regulation 24A

Non-compliance with submission of secretarial compliance report

Rs. 2,000 per day
7 Regulation 28 (1)

Non-compliance with obtaining in-principle approval of stock exchange(s) before issuance of securities

Rs. 50,000 per instance
8 Regulation 31A(3)(a)

Non-compliance pertaining to delay in submission of reclassification application to stock exchanges

Rs. 5,000 per day
9 Regulation 32(1)

Non-submission of deviations/ variations in utilization of issue proceeds

Rs. 1,000 per day
10 Regulation 43A

Non-disclosure of Dividend Distribution Policy in the Annual Report and on the websites of the entity.

Rs. 25,000 per instance
11 Regulation 44(5)

Non-convening of annual general meeting within a period of five months from the close of financial year

Rs. 25,000 per instance
12 Regulation 45(3)

Non-obtaining approval of stock exchange(s) before filing request for change of name with Registrar of Companies

Rs. 25,000 per instance

Further, non-compliance with Reg. 39 (3) (i.e Non-submission of information regarding loss of share certificates and issue of the duplicate certificates within the period prescribed under this regulation) for which penal provisions are applicable as per Existing SOP circular, has been dropped in the New SOP circular.

4. Freezing of entire shareholding of promoter(s) in such entity as well as all other securities held in demat account of promoter(s)

> As per Existing SOP Circular, every recognized stock exchange shall review the compliance status of the listed entities within 15 days from the date of receipt of information and shall issue notices to the non-compliant listed entities to ensure compliance and collect fine as per this circular within 15 days from the date of such notice. While issuing the said notice, the recognized stock exchange shall also send intimation of notice to other recognized stock exchange(s) where the shares of the non-compliant entity are listed. If the non-compliant listed entity fails to comply with the aforesaid requirement(s) and/or pay fine levied within the stipulated period as per the notice stated above, the concerned recognized stock exchange(s) shall, upon expiry of the period indicated in the notice, forthwith intimate the depositories to freeze the entire shareholding of the promoter and promoter group in such entity as well as all other securities held in the demat account of the promoter and promoter group.

> As per the New SOP Circular, every recognized stock exchange shall review the compliance status of the listed entities and shall issue notices to the non-compliant listed entities within 30 days from the due date of submission of information. Non-compliant listed entity shall ensure compliance with the requirement(s) and pay fines as per the circular within 15 days from the date of such notice. If the non-compliant listed entity fails to comply with the aforesaid requirement(s) and/or pay fine levied within the stipulated period as per the notice stated above, the concerned recognized stock exchange(s) shall, upon expiry of the period indicated in the notice, shall issue notices to the promoter(s) of such non-compliant entities, to ensure compliance with the requirement(s) and pay fines within 10 days from the date of such notice. While issuing the aforementioned notices, the recognized stock exchange shall also send intimation to other recognized stock exchange(s) where the shares of the non-compliant entity are listed. The concerned recognized stock exchange(s) shall, upon expiry of the stipulated periods indicated in the aforementioned notices, forthwith intimate the depositories to freeze the entire shareholding of the promoter(s) in such entity as well as all other securities held in the demat accounts, if the non-compliant listed entity fails to comply with the aforesaid requirement(s) and/or pay fine levied. The depository(ies) shall immediately freeze such demat accounts and also intimate the promoter(s) about the details of non-compliances resulting in freezing of their demat accounts.

The aforesaid requirement of promoter intimation by the stock exchange(s) was not covered in the Existing SOP Circular.

5. Unfreezing of entire shareholding of promoter(s) in such entity as well as all other securities held in demat account of the promoter(s)

If the non-compliant listed company subsequently complies with the respective requirements and pays the fine levied, in terms of the Circular:

> As per New SOP Circular, the recognized stock exchange(s) shall intimate the depositories to unfreeze the entire shareholding of the promoter(s) in such entity as well as all other securities held in the demat account of the promoter(s), immediately from the date of compliance. 

> As per the Existing SOP Circular, the recognized stock Exchange is required to intimate the depositories to unfreeze the entire shareholding of the promoter(s) in such entity as well as all other securities held in the demat account of the promoter(s), after one month from the date of compliance.

Here, as per the New SOP Circular, unfreezing action is to be taken by the recognized stock exchange(s) “immediately from the date of compliance” instead of “after one month from the date of compliance”, as applicable in the Existing SOP Circular.

6. Other aspects – Exchange monitoring

Other aspects referred in the New SOP Circular mainly deal with other procedural aspects to be followed by the Stock exchanges in respect of:

– Moving the scrip of the listed entity to “Z” Category,

– Suspending the trading in the shares of the listed entity and

– Revocation of suspension of trading  

Author: Vaibhhav Shah (Cleared CS Executive Exams and appeared for CS Professional Exams)

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6 Comments

  1. Azim Charania says:

    Need your Help.
    Respected Sir,

    My father is having 2 Demat Account with Karvy Stock Broking Ltd Mumbai One Jointly with my Mother who is at present 83 year old.

    Another in his personal name, Both Account are Active.

    My father died in Dec, 2016, on Inquiry with Karvy it comes to my Knowledge that AMC Charges to the tune of Rs 14,000=00 is outstanding Since June / July 2014 till date

    Further the Script Value as on 21 Jan 2020 is in the region of 14000=00.

    My query is Does Karvy will take into consideration my plea if I represent them as Notified in the the Circulars issued by SEBI dated 27 Aug, 2012 and Dec 11 2015 to waive the AMC Charges as the scrip value is less than 50,000 as mentioned in the Circular

    A line in reply is appreciated.

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