SEBI’s Board, in its September 30, 2024 meeting, reviewed proposals for amending regulations to facilitate ease of doing business under the SEBI (Merchant Bankers) Regulations, 1992, SEBI (Bankers to an Issue) Regulations, 1994, and SEBI (Buy-back of Securities) Regulations, 2018. An expert committee had been formed to examine public feedback and make recommendations. Key amendments include removing duplication in responsibility disclosures for lead managers under the Merchant Bankers Regulations, updating definitions of “associate” to exclude common independent directors, and aligning underwriting obligations with the current listing framework. The amendments aim to simplify compliance by eliminating redundant requirements, such as the need for merchant bankers to inform SEBI of investor grievances, which are already published on their websites. Additionally, professional qualifications from recognized foreign institutions will now be accepted for employees of merchant bankers. In the Bankers to an Issue regulations, the definition has been broadened to allow SEBI-registered bankers to handle open offers, buy-backs, and other transactions under relevant regulations. These changes aim to streamline operations for intermediaries, listed entities, and investors, ensuring smoother processes under SEBI’s regulatory framework.
Securities and Exchange Board of India
Monday 30th September – SEBI Board Meeting
Facilitating ease of doing business under SEBI (Merchant Bankers) Regulations 1992, SEBI (Bankers to an Issue) Regulations 1994 and SEBI (Buy-back of Securities) Regulations 2018
1. Objective
1.1. This memorandum seeks approval of the Board for facilitating ease of doing business for intermediaries, listed entities and investor through amendments to the SEBI (Merchant Bankers) Regulations 1992 (“Merchant Bankers Regulations” or “MB Regulations”), the SEBI (Bankers to an Issue) Regulations 1994 (“BTI Regulations”) and the SEBI (Buy-back of Securities) Regulations 2018 (‘Buy-back Regulations”).
2. Background
2.1. An ‘Expert Committee to facilitate ease of doing business (“Expert Committee” or “Committee”) was set up to inter-alia review the MB Regulations, BTI Regulations and Buy-back Regulations.
2.2. The Committee deliberated upon the suggestions received from the public pursuant to SEBI press release dated October 4, 2023, and submitted its report containing recommendations for facilitating ease of doing business under MB Regulations, BTI Regulations and Buy-back Regulations.
2.3. A consultation paper, dated May 21, 2024 was placed on SEBI website seeking public comments on the recommendations of the Expert Committee which is annexed to this Board Memorandum (Annexure I). In response to the aforesaid Consultation Paper, comments received were discussed in the Expert Committee. The Committee considered the public comments (Annexure II) received on the recommendations which are discussed in the following paragraphs.
3. Facilitating ease of doing business under the MB Regulations
3.1. Responsibilities of Lead Managers
3.1.1. Existing Provisions: In terms of Regulation 20(1) of MB Regulations, responsibilities of lead managers are required to be clearly defined, allocated and determined, and a statement specifying such responsibilities is required to be furnished to SEBI at least one month prior to the opening of the issue for subscription.
3.1.2. Recommendations of the Expert Committee: The Committee recommended to include the requirement of disclosure of the statement specifying responsibilities of lead managers in the draft offer document and offer document, as the case may be and do away with the requirement of furnishing the statement specifying Merchant Banker’s responsibilities atleast one month before the issue.
3.1.3. Summary of Public comment: One comment is received and the same is in favour of the proposal.
3.1.4. Rationale for acceptance: After considering the recommendations of Expert Committee and the public comments, the rationale for acceptance of the recommendation is as under –
a) Under respective SEBI Regulations i.e. ICDR Regulations, Merchant Bankers are required to furnish the statement of responsibility in the Draft Offer Document/ Offer Document in addition to the requirement of furnishing statement of responsibilities under MB Regulations. Therefore, to avoid duplication and ease of compliance, the requirement of furnishing statement specifying such responsibility atleast one month before opening of issue may not be required.
3.1.5. Proposal for consideration of the Board: It is proposed to amend MB Regulations by do away with the requirement of submitting a statement specifying Merchant Bankers’ responsibilities and including the requirement of disclosing the responsibilities of Merchant Bankers in the draft offer document and offer document, as the case maybe.
3.2. Merchant Banker not to act as such for an Associate
3.2.1. Existing Provisions: In terms of Regulation 21A of MB Regulations, a merchant banker shall not lead manage any issue or be associated with any activity undertaken under any regulations made by the Board, if he is a promoter or a director or an associate of the issuer of securities or of any person making an offer to sell or purchase securities in terms of any regulations made by the Board. However, nominee director, who are common to Merchant Banker and Issuer are excluded from the definition of associate.
3.2.2. Recommendations of the Expert Committee
a) Committee recommended that reference relating to a merchant banker being “a director” and “he” be deleted since only body corporates are permitted to obtain registration as a merchant banker.
b) Committee also recommended that the exemption to the definition of associate of the issuer or person, in addition to common nominee director, should also be extended to common Independent director.
3.2.3. Summary of Public Comments: Received comments from 02 commenters and the same are in favour of the proposal.
3.2.4. Rationale for acceptance: After considering the recommendations of Expert Committee and the public comments, the rationale for acceptance of the recommendations are as under –
a) Only body corporate (other than NBFC) are eligible to be registered as Merchant Banker. Since merchant banker cannot be individuals, references to “he” and “a director” may be deleted.
b) Currently, common nominee director between the Issuer Company and Merchant Banker handling the issue is excluded from definition of Associate. Based on data available with SEBI, 18 Merchant Bankers have independent directors who are also Independent directors of other Companies. Hence, on similar ground, Independent Directors may be exempted from the definition of Associate.
3.2.5. Proposal for consideration of the Board: It is proposed to amend the MB regulations in order to provide an exemption to the Independent Director from the definition of associate of the issuer or person. Further, the reference to a merchant banker being “a director” and “he” may be deleted.
3.3. Underwriting Obligations
3.3.1. Existing Provisions: In terms of Regulation 22(B)(3) of the MB Regulations, merchant bankers acting as underwriters, in the event of being called upon to subscribe for securities of a body corporate pursuant to an underwriting agreement, shall subscribe to such securities within 45 days of the receipt of such intimation from such body corporate.
3.3.2. Recommendations of the Expert Committee: The Committee recommended that the current timeline to subscribe for securities within 45 days should be aligned with the present listing framework i.e. the requirement to fulfil underwriting obligations should be prior to finalization of the basis of allotment.
3.3.3. Summary of Public comments: One comment is received and the commenter has partially agreed with the proposal, however no rationale has been provided.
3.3.4. Rationale for acceptance: After considering the recommendations of Expert Committee and the public comments, the rationale for acceptance of the recommendation is as under –
a) The timeline to subscribe for securities within 45 days was prescribed in 2006. Further, the timeline for equity listing has been shortened as compared to earlier timeline. The listing in case of IPO has to be completed on T+3 basis as against T+6 earlier. Therefore, the timeline to subscribe to the securities needs to be aligned with the present listing framework. Accordingly, merchant bankers are required to fulfil the underwriting obligation, if any, before basis of allotment which happens before listing.
3.3.5. Proposal for consideration of the Board: It is proposed to amend MB Regulations so that the requirement of fulfilling underwriting obligations by a merchant banker acting as underwriter shall be prior to the finalization of the basis of allotment.
3.4. Consideration of Application
3.4.1. Existing Provisions: Regulation 6 of MB Regulations, inter-alia, requires that the applicant has a professional qualification from an institution recognized by the Government of India in finance, law or business management.
3.4.2. Recommendations of the Expert Committee: The Committee recommended that the professional qualification obtained from recognised foreign university/institution in finance, law or business management should also be considered in addition to professional qualification from an institution recognized by the Government of India. Further, it should be clarified that the requirement of qualification to be required for employees of Merchant Banker.
3.4.3. Summary of Public Comments: One comment is received and the same is in favour of the proposal.
3.4.4. Rationale for acceptance: After considering the recommendations of Expert Committee and the public comments, the rationale for acceptance of the recommendation is as under –
a) Applicants under the MB Regulations can only be body corporates and thus the requirement of professional qualification is applicable to employees of the applicant and not the applicant itself. Further, considering the evolving market landscape, employee holding professional qualification from foreign university/ institution may also be permitted.
3.4.5. Proposal for consideration of the Board: It is proposed to amend the MB Regulations by including the professional qualification from recognized foreign universities/institutions in finance, law or business management for grant of certification of registration of merchant bankers and making the requirement to have professional qualification applicable for employees instead of the applicant itself which is a body corporate.
3.5. Conditions of Registration
3.5.1. Existing provisions: Regulation 9A sets out the conditions of registration of a merchant banker. These requirements, inter-alia, include–
a) Redressal of grievances of investors within a period of 21 days and keep the Board informed about the number, nature and other particulars of the complaints received.
b) The requirement to immediately inform the Board of the details of changes that have taken place to any information that was submitted while obtaining its certificate of registration.
3.5.2. Recommendations of the Expert Committee:
a) The Committee recommended that the requirement to keep SEBI informed about the number, nature and other particulars of the investors’ complaints should be done away with.
b) The Committee recommended that there should be a timeline of seven working days to inform the Board instead of requirement to inform immediately to the Board.
3.5.3. Summary of Public Comments: Two comments are received and the same are in favour of the proposal.
3.5.4. Rationale for acceptance: After considering the recommendations of Expert Committee and the public comments, the rationale for acceptance of the recommendations are as under –
a) In order to remove redundancy, the requirement to keep SEBI informed about investor grievances may be done away with, as such information is required to be published on the Merchant Banker’s website and SEBI’s website.
b) In order to remove ambiguity, the term ‘immediately’ needs to be explicitly defined. The timeline of 7 working days has been prescribed under SEBI FAQs and for better clarity, the same may be incorporated as a part of Regulation itself.
3.5.5. Proposal for consideration of the Board: It is proposed to amend the MB Regulations which is given below-
a) The requirement of keeping the board informed about the nature, number and other particulars of the complaints filed by the investor may be deleted from the regulation;
b) Any change in the details submitted by merchant banker while seeking registration shall be intimated to the Board within seven working days from the date of such change(s).
3.6. References to repealed SEBI regulations and Companies Act, 1956
3.6.1. Existing provisions: References to ICDR SEBI Regulations, 2009 and Companies Act, 1956 is appearing at multiple places in the Merchant Banker Regulations.
3.6.2. Recommendations of the Expert Committee: The Committee recommended that appropriate changes need to be made to the text of the Merchant Bankers Regulations in order to replace the references to SEBI ICDR Regulations, 2009 and the Companies Act, 1956 with SEBI ICDR Regulations, 2018 and Companies Act, 2013, respectively.
3.6.3. Summary of Public Comments: One comment is received and the same is in favour of the proposal.
3.6.4. SEBI’s rationale for acceptance: After considering the recommendations of Expert Committee and the public comments, the rationale for acceptance of the recommendation is as under –
a) The references to SEBI ICDR Regulations 2018 and Companies Act 2013 in MB Regulations need to be updated.
3.6.5. Proposal for consideration of the Board: It is proposed to remove the references of ICDR Regulations 2009 and Companies Act 1956 and replace the same with references to ICDR Regulations 2018 and Companies Act 2013.
4. Facilitating ease of doing business under the BTI Regulations
4.1. Responsibilities of bankers to an issue
4.1.1. Existing provisions: Regulation 2(1)(aa) of BTI Regulations defines a “banker to an issue” and also sets out an indicative list of activities that can be carried out by a banker to an issue.
4.1.2. Recommendations of the Expert Committee: The committee recommended that the existing definition should be amended to clarify that SEBI registered bankers to an issue are also authorized to act as bankers in connection with open offers, buy-backs and any other transactions as required under applicable regulations issued by SEBI.
4.1.3. Summary of Public Comments: One comment is received and the same is in favour of the proposal.
4.1.4. Rationale for acceptance: After considering the recommendations of Expert Committee and the public comments, the rationale for acceptance of the recommendations is as under –
a) The proposed definition is aimed to encapsulate all the banking activities permitted for a Banker to an Issue under different applicable SEBI Regulations.
4.1.5. Proposal for consideration of the Board: It is proposed to amend BTI Regulations by permitting the Bankers to an Issue to carry out activities as required under applicable regulations framed by the Board.
4.2. Grant of certificate of registration
4.2.1. Existing provisions: Currently, there are no provisions under the BTI Regulations that restrict an entity from acting as a banker to an issue prior to obtaining certificate of registration from SEBI.
4.2.2. Recommendations of the Expert Committee: The Committee recommended that a clarificatory provision should be introduced under Regulation 3 of BTI Regulations which specifies that no entity can act as a banker to an issue prior to obtaining a certificate of registration from SEBI.
4.2.3. Summary of Public Comments: One comment is received and the same is in favour of the proposal.
4.2.4. Rationale for acceptance: After considering the recommendations of Expert Committee and the public comments, the rationale for acceptance of the recommendations is as under –
a) The proposed amendment will provide clarity that no person can act as Bankers to an Issue without seeking requisite registration.
4.2.5. Proposal for consideration of the Board: It is proposed to insert a provision in BTI Regulations which shall specify that no entity can act as a banker to an issue prior to obtaining a certificate of registration from SEBI.
5. Facilitating ease of doing business under the Buy-back Regulations
5.1. Issuance of Shares or other specified securities during the Buy-back Period
5.1.1. Existing provisions: As per Regulation 24(i)(b) of Buy-back Regulations, the company is not permitted to issue any shares or other specified securities including by way of bonus till the date of expiry of buy-back period for the offer made under Buy-back Regulations.
5.1.2. Recommendations of the Expert Committee: The committee recommended that the company may be allowed to issue equity shares in discharge of subsisting obligations such as conversion of warrants, employee stock option schemes, etc. during the buy-back period.
5.1.3. Summary of Public Comments: One comment is received and the same is in favor of the proposal.
5.1.4. Rationale for acceptance: After considering the recommendations of Expert Committee and the public comments, the rationale for acceptance of the recommendations are as under –
a. Since the commitments in the form of ESOPs or convertible instruments are made prior to the announcement of Buy-back, it would be fair to permit such exercise/conversions, if date of such exercise/conversion falls within the buy-back period.
b. Further, it is also observed that Rule 17(10)(b) of the Companies (Share Capital and Debenture) Rules, 2014 provides for issuance of new shares those arising out of any convertible instruments during the buy-back period.
5.1.5. Proposal for consideration of the Board: It is proposed to amend the Buy-back Regulations to –
a. allow the company to issue shares in discharge of subsisting obligations such as conversion of warrants, employee stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares during the buy-back period.
b. Require the company to disclose the information of any subsisting obligations along with the relevant details and its likely impact in the public announcement regarding Buyback.
5.2. Manner of computation of Entitlement Ratio
5.2.1. Existing provisions: Presently, the regulations do not provide the manner of calculating the entitlement ratio. However, as a general practice, if any promoter intends to not participate in buy-back and if the same is disclosed in public announcement, then shares held by promoters are not considered in computation of the entitlement ratio.
5.2.2. Recommendations of the Expert Committee: The committee recommended that if a promoter gives an upfront confirmation of intention to not participate in the buy-back, then shares held by them should not be considered for computation of entitlement ratio. This would result in increase in entitlement for the remaining shareholders.
5.2.3. Summary of Public Comments: One comment has been received, which partially agrees with the proposal.
The commenter has opined that since the confirmation is only for promoters’ intention, in the event the promoter is not able to tender the quantum of shares stated, it may overshoot the total entitlement of all shareholders. In this regard, the committee observed that the commenter has misunderstood the concept of the entitlement ratio with acceptance ratio thus his comment is not relevant to the proposal.
5.2.4. Rationale for acceptance: After considering the recommendations of Expert Committee and the public comments, the rationale for acceptance of the recommendations is as under –
a) In the event any promoter chooses to not participate in the buy-back, it will benefit other shareholders as a result of higher entitlement ratio. They will be eligible to tender more shares for buyback. This will also streamline the market practice for determining entitlement ratio.
5.2.5. Proposal for consideration of the Board: It is proposed to amend the Buyback Regulations to provide that if any promoters intend not to participate in buy-back and the same is disclosed in public announcement, then shares held by them would not be considered in computation of the entitlement ratio.
5.3. Reference date for Commencing Open Market Buy-back through Stock Exchange
5.3.1. Existing provisions: As per Regulation 17(ii) of Buy-back Regulations, the open market buy-back through stock exchange, shall open not later than four working days from the record date.
5.3.2. Recommendations of the Expert Committee: The committee discussed that as concept of record date is not relevant to the process of buy-back if recommended to amend the requirement of commencing the open market buy-back through stock exchange “not later than four working days from the record date” to “not later than four working days from the date of public announcement”.
5.3.3. Summary of Public Comments: One comment has been received, which partially agrees with the proposal.
The commenter has stated that dissemination and absorption of any information cannot be adequately factored in within the prescribed timeframe of four working days. In this regard, the Expert Committee discussed on the comment received and recommended that in the present era of electronic communication, the time of four days is appropriate for the information to be disseminated and absorbed by the shareholders.
5.3.4. Rationale for acceptance: After considering the recommendations of Expert Committee and the public comments, the rationale for acceptance of the recommendations is as under –
a) The purpose of Record date is not relevant for Open Market Buyback through stock exchange route as there is no need of computing entitlement ratio as any shareholder may tender share in the separate window of buy-back during the period for which the buy-back is open.
5.3.5. Proposal for consideration of the Board: It is proposed to amend the Buy- back Regulations to provide that the buy-back offer through stock exchange route shall open not later than four working days from the date of public announcement.
5.4. Disclosures in the Letter of Offer
5.4.1. Existing provisions: As per Regulation 8(i)(a) of Buy-back Regulations, the company shall file with the Board, a letter of offer, containing disclosures as specified in Schedule III, through a Merchant Banker who is not an associate of the company.
5.4.2. Recommendations of the Expert Committee: “Schedule III [Regulation 8(1)(a)], Disclosures in the Letter of Offer for buy-back through tender offer” may be modified as follows-
a. Cover page of the Letter of Offer to include the entitlement ratio for small and general shareholders.
b. Letter of Offer to include link to website of the Registrar and Share Transfer Agent for shareholders to check their entitlement under the buy-back.
5.4.3. Summary of Public Comments: One comment is received on the proposals and the same is in favour of the proposal.
5.4.4. Rationale for acceptance: After considering the recommendations of Expert Committee and the public comments, the rationale for acceptance of the recommendations is as under –
a) Disclosing such material information would facilitate shareholders in tendering shares in buy-back as per their entitlement.
5.4.5. Proposal for consideration of the Board: It is proposed to amend the Buyback Regulations to provide that –
a. the cover page of the Letter of Offer shall include the entitlement ratio.
b. the Letter of offer shall include a link to the website of the Registrar and Share Transfer Agent for shareholders to check their entitlement in the buy-back.
5.5. Other Issues
5.5.1. Existing provisions: As per Regulation 4(ii) of Buy-back Regulations, the ratio of the aggregate of secured and unsecured debts owed by the company to the paid-up capital and free reserves after buy back shall –
a. be less than or equal to 2:1, based on the standalone or consolidated financial statements of the company, whichever sets out a lower amount:
Provided that if a higher ratio of the debt to capital and free reserves for the company has been notified under the Companies Act, 2013, the same shall prevail; or
b. be less than or equal to 2:1, based on the standalone or consolidated financial statements of the company, whichever sets out a lower amount, after excluding financial statements of all subsidiaries that are non-banking financial companies and housing finance companies regulated by Reserve Bank of India or National Housing Bank, as the case may be:
Provided that buy-back of securities shall be permitted only if all such excluded subsidiaries have their ratio of aggregate of secured and unsecured debts to the paid-up capital and free reserves of not more than 6:1 on standalone basis.
5.5.2. Recommendations of the Expert Committee: The committee recommends that for the purpose of clarifying the ambiguity, the words “whichever sets out a lower amount” be replaced with “whichever is lower” in Regulation 4(ii) .
5.5.3. Summary of Public Comments: One comment is received and the same is in favour of the proposal.
5.5.4. Rationale for acceptance: After considering the recommendations of Expert Committee and the public comments, the rationale for acceptance of the recommendation is as under –
a) Since, the provisions deal with the ratio, it would be appropriate to replace the words “whichever sets out a lower amount” with “whichever is lower”.
5.5.5. Proposal for consideration of the Board: It is proposed to amend Regulation 4(ii) of Buy-back Regulations by substituting the words “whichever sets out a lower amount” with “whichever is lower”.
6. Proposal to the Board
6.1. The Board is requested to consider and approve:
a) proposals mentioned at paragraphs 3.1.5, 3.2.5, 3.3.5, 3.4.5, 3.5.5 & 3.6.5 that would require amendments to the MB Regulations.
b) proposals mentioned at paragraphs 4.1.5 & 4.2.5 that would require amendments to the BTI Regulations.
c) proposals mentioned at paragraphs 5.1.5, 5.2.6, 5.3.6, 5.4.5 & 5.5.5 that would require amendments to the Buy-back Regulations.
6.2. The proposed amendments to MB Regulations, BTI Regulations and Buyback Regulations are placed at Annexure III.
6.3. The Board is also requested to authorize the Chairperson to take consequential and incidental steps to give effect to the decisions of the Board.
Encls:
1. Annexure I (Available on SEBI website)
2. Annexure II (Excised for reasons of confidentiality)
3. Annexure III – Draft amendments to the MB Regulations, BTI Regulations and Buyback Regulations (Amendments shall be notified after following the due process)
Annexure I
(Consultation paper is available on SEBI website www.sebi.gov.in at Reports & Statistics » Reports » Reports for Public Comments)
Annexure II
(This has been excised for reasons of confidentiality)
Annexure III
(Amendments shall be notified after following the due process)
