In this article, we shall try to understand the Securities and Exchange Board of India (‘SEBI’) circular dated 24th August 2023 (‘SEBI Circular 2023’)[1] mandating additional disclosures by Foreign Portfolio Investors (‘FPIs’) that fulfil certain objective criteria and [2]circulars issued by Bombay Stock Exchange (‘BSE’) and National Stock Exchange (‘NSE’) in furtherance to the said SEBI circular 2023.
Background: In the year 2020, Government of India issued a press note[3] which said that individual investors as well as corporates whose beneficial owners are from countries sharing land borders with India should invest in Indian companies only through government approval route. However, this press note was not applicable to FPIs neither were they required to disclose their beneficial owners. Therefore, there was a possibility that investors from countries sharing land borders with India would invest through FPIs.
To remove this lacuna, SEBI amended its Securities and Exchange Board of India (Foreign Portfolio Investment) Regulations, 2019 (‘SEBI FPI Regulations’) and through SEBI circular 2023, clarified that, all FPIs whose shareholding in one Indian corporate group is more than 50%, will have to declare details of its beneficial owners. But SEBI Circular 2023 did not prescribe the meaning of ‘Corporate Group’ (‘CG’).
Guidance from BSE & NSE: As discussed above, as per SEBI Circular 2023, FPIs are required to disclose their beneficial owners if their shareholding in one Indian corporate group is more than 50%. For the purpose of this compliance, it was essential to have clarity about who all are included in corporate group. BSE and NSE have vide their circulars dt: November 30, 2023 [‘November Circular’] provided criteria following which BSE and NSE would be identifying CG. Vide November Circular BSE and NSE inter-alia stated that all the subsidiary companies, associate companies of one parent company shall come in one CG and all such companies who are recognised as group companies on the website or in the annual report of the company, shall also be considered as CG companies. Further BSE and NSE has also stated that these disclosures would only be required to be given in case of listed companies only and not all companies within the group. As per November Circular, all the listed companies in the CG should disclose to BSE and NSE about any change in the CG structure within two working days from effective date of such change. This intimation had to be given through an email to NSE.
XBRL filing of change in CG – BSE circular dated February 9th, 2024: In furtherance of the November Circular, BSE has issued circular dt: February 9, 2024 [‘February Circular’][4]. February Circular reiterates the grounds enumerated in earlier circular, based on which, CG would be identified. As per February Circular BSE has introduced a new XBRL format for reporting changes in CG. This new format can be found on the BSE website. Updation in CG on BSE has to be done in XBRL form.
Anamolies:
1. Reasons for change in corporate group:
November Circular and February Circular list some of the reasons for change in corporate group, post which, the companies need to intimate the change in CG to the BSE and NSE. However, there are some more events post which, there may be change in CG structure. In such a case, there arises a question that, in case there is change in CG structure due to any event which is not mentioned in the both the Circulars, then whether listed companies are required to give intimation to BSE and NSE?
If we refer to the language of circular which reads as, “In case of any change in its corporate group pursuant to any event such as Corporate Restructuring, Takeover, Merger, Demerger, Acquisition, Delisting etc., the companies have to intimate the Exchange within Two Working Days of the Effective Date of the change”, we may observe that the list of events provided is an illustrative list and therefore, disclosure has to be given in case of other changes as well. Such other changes may include events like listing of equity shares of any group company, or any equity listed entity ceasing to be a subsidiary or associate company.
2. Alignment with disclosure under regulation 30 of SEBI (Listing Obligations and Disclosure Requirements), Regulations 2015 [‘SEBI LODR’]:
Listed companies are required to intimate acquisition(s) (including agreement to acquire), Scheme of Arrangement (amalgamation, merger, demerger or restructuring), sale or disposal of any unit(s), division(s), whole or substantially the whole of the undertaking(s) or subsidiary of the listed entity, sale of stake in associate company of the listed entity or any other restructuring. This is mandated as per Point 1, Para A, Part A, Schedule III of SEBI LODR.
Now as per the November Circular and February Circular any change in CG due to merger, de-merger, corporate restructuring etc. will also require disclosure. Hence listed companies would now have to submit disclosures pertaining to corporate restructuring under SEBI LODR and pursuant to the November Circular and February Circular. This would also help BSE and NSE to reconcile whether details of corporate restructuring have been disclosed under Circulars and as per SEBI LODR.
Further listed companies need to be mindful of the fact that two separate disclosures are to be given within two separate timelines for one same event. If even one disclosure is missed, then the company may have to face consequences.
Conclusion: In conclusion, we can say that all the regulatory authorities work in tandem with each other to give effect to provisions which are in the best interest of the industry. Also, this co-ordination between the regulators helps to achieve ease of doing business as gaps in the provisions are addressed in a timely manner.
[1] https://taxguru.in/sebi/sebi-guidelines-fpis-enhanced-disclosure-norms.html
[2] https://taxguru.in/sebi/bse-notice-sebi-circular-corporate-grouping-listed-companies.html
[3] https://taxguru.in/rbi/govt-restricts-fdi-countries-india-share-land-border.html
[4] https://taxguru.in/sebi/bse-corporate-grouping-norms-listed-companies.html
The article is written by Ms. Rutuja Umadikar – Research Associate and Mr. Vallabh Joshi – Senior Manager.
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