Introduction: The Securities and Exchange Board of India (SEBI) has issued Circular No. SEBI/HO/CFD/PoD-2/P/CIR/2023/141 on August 10, 2023. This circular outlines the procedure and requirements for seeking prior approval for change in control of certain intermediaries, including Merchant Bankers and Bankers to an Issue. It aims to streamline the process and ensure compliance with regulations.
Analysis: The circular emphasizes that certain intermediaries, including Merchant Bankers and Bankers to an Issue, must obtain prior approval from SEBI for any change in control. It specifies the information, declarations, and undertakings that need to be included in the application for prior approval. These include details about shareholding patterns, past applications to SEBI, actions taken under relevant acts and regulations, pending investor complaints, litigation details, compliance with fees, and more.
The circular also addresses scenarios involving scheme(s) of arrangement that require National Company Law Tribunal (NCLT) sanction. It mandates that approval for change in control must be sought from SEBI before filing with NCLT. An in-principle approval will be granted by SEBI, subject to regulatory compliance, and the validity of this approval is three months. The intermediary must then submit an application to SEBI after obtaining NCLT approval, providing necessary documents and compliance details.
The circular replaces the previous circular dated August 02, 2011, and is applicable from September 01, 2023.
Conclusion: SEBI’s circular introduces a comprehensive framework for obtaining prior approval for change in control of intermediaries. By specifying detailed procedures, declarations, and undertakings, the circular enhances transparency, accountability, and regulatory compliance. This step is expected to contribute to the overall integrity and stability of India’s financial markets.
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Securities and Exchange Board of India
Circular No. SEBI/HO/CFD/PoD-2/P/CIR/2023/141 Dated: August 10, 2023
To
All Registered Merchant Bankers
All Registered Bankers to an Issue
Dear Sir / Madam,
Sub: Procedure for seeking prior approval for change in control
1. Securities and Exchange Board of India (“SEBI”) vide circular no. CIR/MIRSD/14/2011 dated August 02, 2011 had specified the procedure for seeking prior approval for change in control of certain intermediaries including Merchant Bankers and Bankers to an Issue.
2. Regulation 9A(1)(a) of SEBI (Merchant Bankers) Regulations, 1992 and Regulation 8A(1)(a) of SEBI (Bankers to an Issue) Regulations, 1994 provide that Merchant Bankers and Bankers to an Issue respectively shall obtain prior approval of SEBI in case of change in control.
3. To streamline the process of obtaining approval for the proposed change in control of Merchant Bankers and Bankers to an Issue (hereinafter referred as intermediary), the following procedure has been specified:
i. The intermediary shall make an online application to SEBI for prior approval through the SEBI Intermediary Portal (‘SI Portal’) (https ://siportal .sebi .gov. in).
ii. The online application in SI portal shall be accompanied by the following information / declaration / undertaking about itself, the acquirer(s) / the person(s) who shall have the control and the directors / partners of the acquirer(s) / the person(s) who shall have the control:
a) Current and proposed shareholding pattern of the intermediary.
b) Whether any application was made in the past to SEBI seeking registration in any capacity but was not granted? If yes, details thereof.
c) Whether any action has been initiated/taken under Securities Contracts (Regulation) Act, 1956 (SCRA) / Securities and Exchange Board of India Act, 1992 (SEBI Act) or rules and regulations made thereunder? If yes, the status thereof along with the corrective action taken to avoid such violations in the The acquirer(s) / the person(s) who shall have the control shall also confirm that it shall honour all past liabilities / obligations of the applicant, if any.
d) Whether any investor complaint is pending? If yes, steps taken and confirmation that the acquirer(s) / the person(s) who shall have the control shall resolve the same.
e) Details of litigation(s), if any.
f) Confirmation that all the fees due to SEBI have been paid.
g) Declaration cum undertaking of the intermediary and the acquirer(s) / the person(s) who shall have the control (in a format enclosed at Annexure A), duly stamped and signed by their authorized signatories that:
i. there will not be any change in the Board of Directors of incumbent, till the time prior approval is granted;
ii. pursuant to grant of prior approval by SEBI, the incumbent shall inform all the existing investors/ clients of the intermediary about the proposed change prior to effecting the same, in order to enable them to take informed decision regarding their continuance or otherwise with the new management; and
iii. the ‘fit and proper person’ criteria as specified in Schedule II of SEBI (Intermediaries) Regulations, 2008 are complied with.
h) In case the incumbent intermediary is a registered stock broker, clearing member, depository participant, in addition to the above, it shall obtain approval / NOC from all the stock exchanges / clearing corporations / depositories, where the incumbent is a member/depository participant and submit self-attested copy of the same to SEBI.
iii. Subject to other appropriate sectoral regulator’s approval with regard to change in control, the prior approval granted by SEBI shall be valid for a period of six months from the date of SEBI’s approval within which the applicant shall file application for fresh registration pursuant to change in control.
4. To streamline the process of providing approval to the proposed change in control of an intermediary in matters which involve scheme(s) of arrangement which needs sanction of the National Company Law Tribunal (“NCLT”) in terms of the provisions of the Companies Act, 2013, the following has been decided:
i. The application for approval of the proposed change in control of the intermediary shall be filed with SEBI prior to filing the application with NCLT.
ii. Upon being satisfied with compliance of the applicable regulatory requirements, an in-principle approval will be granted by SEBI;
iii. The validity of such in-principle approval shall be three months from the date of issuance, within which the relevant application shall be made to NCLT.
iv. Within 15 days from the date of order of NCLT, the intermediary shall submit an online application in terms of paragraph 3 of this circular along with the following documents to SEBI for final approval:
a. Copy of the NCLT Order approving the scheme;
b. Copy of the approved scheme;
c. Statement explaining modifications, if any, in the approved scheme vis-à-vis the draft scheme and the reasons for the same; and
d. Details of compliance with the conditions! observations, if any, mentioned in the in-principle approval provided by SEBI.
5. This Circular shall supersede the circular no. CIR!MIRSD/14/2011 dated August 02, 2011 with effect from the date of applicability of this circular, to the extent they relate to Merchant Bankers and Bankers to an Issue.
6. The provisions of this circular shall be applicable with effect from September 01, 2023.
7. This Circular is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992.
8. A copy of this circular is available on SEBI website at sebi.gov.in under the categories “Legal Framework → Circulars”.
Yours faithfully,
Vimal Bhatter
Deputy General Manager
Corporation Finance Department
Policy and Development – 1
+91 22 2644 9386
Email – vimalb@sebi.gov.in
Annexure A
Declaration-Cum-Undertaking
We, M/s. (Name of the intermediary/the acquirer(s)/person(s) who shall have the control), hereby declare and undertake the following with respect to the application for prior approval for change in control of (name of the intermediary along with the SEBI registration no.):
1. The intermediary (Name) and its principal officer, the directors or managing partners, the compliance officer and the key management persons and the promoters or persons holding controlling interest or persons exercising control over the applicant, directly or indirectly (in case of an unlisted applicant or intermediary, any person holding twenty percent or more voting rights, irrespective of whether they hold controlling interest or exercise control, shall be required to fulfill the ‘fit and proper person’ criteria) are fit and proper person in terms of Schedule II of SEBI (Intermediaries) Regulations, 2008.
2. We bear integrity, honesty, ethical behaviour, reputation, fairness and character.
3. We do not incur following disqualifications mentioned in Clause 3(b) of Schedule II of SEBI (Intermediaries) Regulations, 2008 i.e.
i. No criminal complaint or information under section 154 of the Code of Criminal Procedure, 1973 (2 of 1974) has been filed against us by the Board and which is pending.
ii. No charge sheet has been filed against us by any enforcement agency in matters concerning economic offences and is pending.
iii. No order of restraint, prohibition or debarment has been passed against us by the Board or any other regulatory authority or enforcement agency in any matter concerning securities laws or financial markets and such order is in force.
iv No recovery proceedings have been initiated by the Board against us and are pending.
v. No order of conviction has been passed against us by a court for any offence involving moral turpitude.
vi. No winding up proceedings have been initiated or an order for winding up has been passed against us.
vii. We have not been declared insolvent.
viii. We have not been found to be of unsound mind by a court of competent jurisdiction and no such finding is in force.
ix. We have not been categorized as a wilful defaulter.
x. We have not been declared a fugitive economic offender.
4. We have not been declared as not ‘fit and proper person’ by an order of the Board.
5. No notice to show cause has been issued for proceedings under SEBI (Intermediaries) Regulations, 2008 or under section 11(4) or section 11 B of the SEBI Act during last one year against us.
6. It is hereby declared that we and each of our promoters, directors, principal officer, compliance officer and key managerial persons are not associated with vanishing
7. We hereby undertake that there will not be any change in the Board of Directors of incumbent, till the time prior approval is granted.
8. We hereby undertake that pursuant to grant of prior approval by SEBI, the incumbent shall inform all the existing investors/ clients about the proposed change prior to effecting the same, in order to enable them to take informed decision regarding their continuance or otherwise with the new management.
The said information is true to our knowledge.
(stamped and signed by the Authorised Signatories)
