Pursuant to the SEBI (Issue of Capital and Disclosure Requirements) Regulations of 2018, SEBI on 11th May, 2021 came up with a consultation paper seeking public comments and reviewing the current situation concerning: Promoters, Promoter Group and Group Companies.
And in continuation to the same, it has garnered following proposals for which it has sought public comments till June 10, and they are:
1. Streamlining the definition of “Promoters[1]”, and moving ahead with the concept of “Person-in-Control[2]” on one side and reducing and minimizing the lock-in requirements of concerned promoters and also of shareholders that are investing in an IPO.
2. From the current lock-in period of 3 years, the said has been proposed to reduce to one year, in the case if objective of the issue is concerning offer for sale or something related to financing, but not for any of capital expenditures for a project, and therefore the specified promoters contribution has to be of 20%(min.) to be locked-in from the date of allotment in an IPO.
3. In addition to the above point, if in any case the min. contribution of promoters is more than what is prescribed, then the said excess to be lock-in for period of six months in comparison to current one year period at present, and at the same time, those persons other than promoters, who have pre-issue capital in their hands have to follow six months lock-in time from IPO allotment as compared to one year at present.
4. With regard to “Promoter”, SEBI is looking for doing away with its definition for bringing the current disclosure requirements in hand with what has been specified in ICDR Regulations, and at the same time, amending the definition of “Promoter Group[3]” as at present what is happening is that there are some bunch of common or related persons who are holding such esteemed positions even in companies that are completely unrelated to one another, therefore ending up with same financial investors and disregarding the investment environment by holding common holdings among selective and identified persons and their relatives or family members.
5. Also in case of “Promoter Group”, it suggested that only the names and Reg. Office Address of such group companies of the issuing company needs to be disclosed in Draft Red Herring Prospectus, as provided or mentioned in S.32 of CA’13, and hence any other disclosure requirements aren’t required to be followed n that draft paper.
Reasoning:
What SEBI actually clarified and pinpointed is that the current investment environment has been changing very rapidly, and now there are various high net worth individuals, private equity investors, institutional investors, etc. who have been investing in many big companies and at the same time holding a very key and important position in that company post their investment, and at the same time have been able to run and look after that company very well, thereby serving the twin purpose of “Substantial Shareholding”, and “Control over company”.
For proving the same reasoning, it has also said that in the past, ranging from the year 2008, the aggregate shareholdings of promoters in top 500 listed entities is on a decreasing trend, and at the same time, the holdings (in terms of market value) of institutional investors from the year 2009 in top 500 listed entities is on increasing trend.
And for this implementation, a time period of almost three years has been proposed so that the changes can be made in the regulations and in the market and its functioning in a steady and simplified manner without causing any disruptions among relevant stakeholders.
[1] Section 2(69) of Companies Act 2013: A person who has been amed as such in a prospectus or is identified by the company in the annual return in section 92; or A person who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or A person who is in agreement with whose advice, directions or instructions the Board of Directors of the company is accustomed to act.
[2] Control defined u/s 2(27) of Companies Act of 2013.a
[3] ‘Promoter group’ includes:
1. the promoter;
2. an immediate relative of the promoter (i.e., any spouse of that person, or any parent, brother, sister or child of the person or of the spouse);
- in case promoter is a body corporate:
1. a subsidiary or holding company of such body corporate;
2. any body corporate in which the promoter holds 10% or more of the equity share capital or which holds 10% or more of the equity share capital of the promoter;
3. any body corporate in which a group of individuals or companies or combinations thereof which hold 20% or more of the equity share capital in that body corporate also holds 20% or more of the equity share capital of the issuer;
- in case the promoter is an individual:
1. anybody corporate in which 10% or more of the equity share capital is held by the promoter or an immediate relative of the promoter or a firm or Hindu Undivided Family in which the promoter or any one or more of his immediate relative is a member;
2. anybody corporate in which a body corporate as provided in (a) above holds 10% or more, of the equity share capital;
3. any Hindu Undivided Family or firm in which the aggregate shareholding of the promoter and his immediate relatives is equal to or more than 10% of the total;
provided that a financial institution, scheduled bank, foreign institutional investor and mutual fund shall not be deemed to be a promoter merely by virtue of the fact that 10 % or more of the equity share capital of the issuer is held by such person.
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