Relaxation with the Procedure of Right issue

The right issue has always been a lucrative option for companies for raising funds for them. These days the whole nation has its eye on the next big upcoming right issue of the Reliance Industries Limited (RIL). The right issue has been set up to raise Rs. 53,125 crores. It is scheduled to be opened on 14th May of 2020.

Due to the COVID-19 issue, not only Reliance but many other big corporate houses and listed companies who are desirous of raising capital by way of the right issue are facing many ground reality problems. Many representations were made to the ministry for providing relaxation in the laws. Pursuant to these representations the SEBI came out with some procedural relaxation vide its circular SEBI/HO/CFD/DIL2/CIR/P/2020/78 dates 6th May 2020. The Ministry of Corporate Affairs also issued a circular 21/2020 dated 11th May 2020 for providing Clarification regarding the mode of issue of Notice U/S 66(2) of Companies Act, 2013.

Clarification by MCA

In case of inability to issue notice referred in 62(a)(1)(i) of the Companies Act,2013 for the right issue by a listed company to its shareholders by way of:

  • Registered Post or
  • Speed Post or
  • Courier          

Then in such case of inability shall not amount to the violation of the Law.

The aforementioned relaxation is allowed for all the listed companies whose issues will be opening on or before 31st July 2020.

Therefore, the listed companies can issue the Notice in any other mode but subject to the relaxation provided under the circular SEBI/HO/CFD/DIL2/CIR/P/2020/78 issued by the SEBI.

Note: Such Relaxation is not applicable for unlisted public companies and private companies.

Relaxation in the Procedural matter of Right Issue

1. Dispatch of abridged letter of offer, application form, and other documents to the shareholders may be done by electronic mode in case of failure of registered or speed post or courier service due to coronavirus outbreak. It is not considered as non-compliance. However, the listed company shall do the following:

  • Publish the letter of offer, abridged letter of offer, and application forms on the websites of all of these: Company, registrar, stock exchange, and the lead manager to the issue.
  • The company in association with the lead manager shall undertake the steps to reach out the majority of shareholders through other ways like audio-video advertisement on television, digital advertisement on the internet, SMS, and any other similar means.

2. As per the regulation 84(1) of ICDR, the company shall issue advertisement in 3 newspapers (one English, One Hindi, and One regional language) where the registered office of the company is situated.

  • The aforementioned advertisement shall also contain additional information regarding how to apply for the issue for the shareholders who have not received electronic notice.
  • The issuer if want can publish the advertisement in other newspaper also in addition to the newspapers mentioned in regulation 84(1) of ICDR.
  • The advertisement shall also be published on the following websites: company, Registrar, Lead manager, and Stock Exchanges.
  • The advertisement can be done on TV, Radio, internet, etc. It can be in the form of crawlers and tickers also.

3. Due to the COVID-19, many physical shareholders are not able to open Demat Account or are unable to communicate their details for the REs (i.e. Dematerialized Right Entitlement). Such shareholders can also apply in the right issue if satisfy the following conditions:

  • The company with the help of lead manager develop such a mechanism to let the physical shareholders to apply in the right issue and take adequate steps to communicate such mechanism to such physical shareholder.
  • The right to renounce is not given to these shareholders.
  • The shares under the right issue shall be allotted in the Demat form only.

4. As per Regulation 76 of ICDR, the application for the right issue shall be processed only through the ASBA facility. But due to the COVID-19 outbreak, an optional mechanism (non-cash mode only) to accept the application by the shareholder shall be developed by the company. But such a mechanism shall ensure that no third-party payment shall be allowed in respect of any application.

5. For the mechanism mentioned in point 1 and 4 above following shall be kept in mind:

  • The mechanism developed shall be considered as an additional option, not like a substitute to the exiting procedure. As much as the possible existing procedures should be followed.
  • The mechanism developed should be transparent and should not incur any additional expense of the investor.
  • Dedicated helpdesk and helpline shall be put in place for the investors in order to remove the difficulties. An FAQ shall also be published for help.
  • The company along with lead manager(s), registrar, and other recognized intermediaries shall be responsible for all investor compliant.

Note:

In respect of filing all offer documents following relaxation are granted:

1. Authentication/ certification/ Undertaking(s) in respect of offer documents, may be done using digital signature certifications.

2. The company along with lead manager(s) shall provide a procedure for inspection of material documents electronically.

All the above relaxation by SEBI is effective form 6th May 2020 and shall be applicable to all the listed companies whose issues will be opening on or before 31st July 2020.

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