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13 December 2023

Legalaxy - Monthly Newsletter Series - Vol VII - December, 2023

VA
Vaish Associates Advocates

Contributor

Established in 1971, Vaish Associates, Advocates is one of the best-known full-service law firms in India. Since its inception, it continues to serve a diverse clientele, including domestic and overseas corporations, multinational companies and individuals. Presently, the Firm has its operations in Delhi, Mumbai and Bengaluru.
We are pleased to share with you the link to our newsletter "Legalaxy" for November 2023, providing updates on the recent and relevant legal developments in India.
India Corporate/Commercial Law
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SEBI STREAMLINES PROCEDURE FOR DEALING WITH UNCLAIMED FUNDS

Securities Exchange Board of India ("SEBI"), vide its circulars dated November 8, 2023, has introduced a procedural framework for dealing with unclaimed funds lying with entities who have listed non-convertible securities, Real Estate Investment Trusts ("REITs") and Infrastructure Investment Trusts ("InvITs") ("Circular No. 1, Circular No. 2, Circular No. 3" respectively) for both the entity and its investors/unitholders.

Regulation 61A of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("SEBI LODR") states that the listed entity is required to transfer the unclaimed interest/ dividend/ redemption amount to an escrow account. However, there were no procedural aspects which were covered thereunder for dealing with such funds for both investors and the listed entities. In order to bridge the gap, SEBI has, inter-alia, standardised procedures and steps to be followed for handling such unclaimed amounts and the said procedure has been detailed under Circular No. 1.

Regulation 18(6) of SEBI (REITs) Regulations, 2014 and SEBI (InvITs) Regulations, 2014 states 90% of the Net Distributable Cash Flows of the REITs/ InvITs shall be distributed to the unitholders. In case the amount was unclaimed, the same was required to be transferred to Investor Protection and Education Fund ("IPEF") account, however, there was no procedure which was specified under the specific regulations. SEBI has inserted Regulation 18(6)(f) and Regulation 18(6)(e) in the respective regulations for dealing with the unpaid/unclaimed amounts. The detailed procedure has been mentioned under Circular No. 2 and Circular No. 3, respectively.

The newly introduced frameworks, delineated in the aforementioned circulars, are scheduled to become effective from March 1, 2024.

To read Circular No. 1 click here, to read Circular No. 2 click here & to read Circular No. 3 click here

SEBI CARRIED OUT REGULATORY CHANGES TOWARDS FRACTIONAL INVESTING FOR SM REITs AND INDEX PROVIDERS, FRESH INVESTMENT BY AIFs IN DEMATERIALISED FORM

SEBI, in its board meeting held on November 25, 2023, approved the following decisions:

  1. Amendments to SEBI (REITs) Regulations, 2014, so as to create a regulatory framework for facilitating Small and Medium REITs ("SM REITs"). SM REITs with an asset value of at least INR 50 crores, shall have the ability to create separate scheme(s) for owning real estate assets through special purpose vehicle(s) constituted as companies. This is a departure from the present requirement of a minimum asset value of INR 500 crores for existing REITs.
  2. Providing flexibility to not for profit organizations ("NPOs") in raising funds through the social stock exchange ("SSE") by reducing the minimum issue size in case of public issuance of zero coupon zero principal instruments by NPOs on SSE from INR 1 crore to INR 50 lakhs. The minimum application size in case of public issuance of zero coupon zero principal instruments has also been reduced from INR 2 lakhs to INR 10,000, thereby enabling wider participation of subscribers including retail.
  3. Introducing a regulatory framework for index providers with the objective of fostering transparency and accountability in governance and administration of financial benchmarks in the securities market. The regulatory framework shall be in accordance with the International Organization of Securities Commissions (IOSCO) principles for financial benchmarks and the said regulations shall provide a framework for registration of index providers which license 'Significant Indices' notified by SEBI based on objective criteria.
  4. Mandating all Alternative Investment Funds ("AIFs") to appoint a custodian. Presently, the mandate for appointment of a custodian applied to schemes of Category III AIFs and to schemes of Category I and II AIFs with a corpus more than INR 500 crores. Further, any fresh investments made by AIFs, beyond September 2024, shall be compulsorily held in dematerialised form. These proposals have been approved towards facilitating ease of compliance and to strengthen protection of investor interest in AIFs.

To read the press release click here

WINTER EFFECT - SEBI DONE AWAY WITH THE FREEZING OF FOLIOS

SEBI, vide its circular dated November 17, 2023, on the subject "Simplified norms for processing investor's service requests by Registrars to an issue and Share Transfer Agents ("RTAs") and norms for furnishing PAN, KYC details and Nomination", has amended the Master Circular for RTAs dated May 17, 2023 ("Master Circular").

The Master Circular, inter alia, mandated all the holders of physical securities in listed companies to furnish PAN, nomination, contact details, bank a/c details and specimen signature for their corresponding folio numbers as per the annexure to the Master Circular by October 1, 2023, failure of which leads to freezing of the folios by the RTAs.

In light of the representation received from Registrars Association of India, feedback from investors, and to mitigate unintended challenges in this regard, SEBI has made the following amendments:

  1. reference to the term "freezing/ frozen" has been deleted (Para 19.2.1 of Master Circular); and
  2. referral of folios by RTAs/ listed company to the administering authority under the Benami Transactions (Prohibition) Act, 1988, and/or Prevention of Money Laundering Act, 2002, has been done away with (Para 19.2.2 of the Master Circular).

To read the circular click here & to read the Master Circular click here

NO MORE HIDE AND SEEK OF OWNERSHIP IN LLPs NOW – MCA NOTIFIES LLP SBO RULES

Ministry of Corporate Affairs ("MCA"), vide its notification dated November 9, 2023, has notified the Limited Liability Partnership (Significant Beneficial Owners) Rules, 2023 ("LLP SBO Rules") which shall come into force from the date of their publication in the official gazette ("Effective Date"). The LLP SBO Rules are akin to the Companies (Significant Beneficial Owners) Rules, 2018 applicable to a company.

The LLP SBO Rules, inter alia, stipulates:

  1. every individual who is Significant Beneficial Owner ("SBO") in a reporting Limited Liability Partnership ("Reporting LLP") on the Effective Date to file a declaration in Form No. LLP BEN-1 to the Reporting LLP within 90 days from the Effective Date;
  2. every individual who subsequently becomes a SBO or where his significant beneficial ownership undergoes any change, shall file a declaration in Form No. LLP BEN-1 to the Reporting LLP within a period of 30 days of acquiring such significant beneficial ownership or any change therein;
  3. the Reporting LLP in turn shall file a return in Form No. LLP BEN-2 with the registrar in respect of such declaration, within a period of 30 days from the date of receipt of such declaration by it along with the prescribed fees; and
  4. the LLP shall maintain a register of SBO in Form No. LLP BEN-3.

To read the notification click here

RBI NOTIFIES THE MASTER DIRECTIONS ON INFORMATION TECHNOLOGY GOVERNANCE, RISK, CONTROLS AND ASSURANCE PRACTICES

Reserve Bank of India ("RBI"), vide its notification dated November 7, 2023, has notified the RBI (Information Technology Governance, Risk, Controls and Assurance Practices) Directions, 2023, with a view to consolidate and update the guidelines, instructions, and circulars on information technology governance, risk, controls, assurance practices and business continuity/ disaster recovery management. The directions shall come into effect from April 1, 2024.

The directions are applicable to the following entities who are collectively referred to as the "Regulated Entities": (a) all banking companies, new banks, and the State Bank of India; (b) Non- Banking Finance Companies ("NBFCs"), including the 'top layer', the 'upper layer' and the 'middle layer' as defined in the scale based regulations; (c) credit information companies; and (d) EXIM bank, national bank, NABARD, NHB, SIDBI. However, it is clarified that these directions shall not be applicable to local area banks and NBFC – core investment companies. The key focus of these directions is to ensure that the Regulated Entities shall put in place a robust information technology governance framework.

To read the notification click here

RBI NOTIFIES THE REGULATORY MEASURES TOWARDS CONSUMER CREDIT AND BANK CREDIT TO NBFCs

RBI, vide its notification dated November 16, 2023, has notified regulatory measures towards consumer credit and bank credit to NBFCs with an aim to strengthen banks surveillance mechanisms, address build-up of risk and institute suitable safeguards for the banks' own interest.

A few key provisions of the regulatory measures are:

  1. Consumer credit exposure of commercial banks - consumer credit exposure of commercial banks (outstanding as well as new) shall attract a risk weight of 125% as compared to 100% as per the earlier norms.
  2. Consumer credit exposure of NBFCs - consumer credit exposure of NBFCs (outstanding as well as new) shall attract a risk weight of 125% as compared to 100% as per the earlier norms.
  3. Credit card receivables - exposure of credit card receivables of scheduled commercial banks and NBFCs shall attract a risk weight of 150% and 125% respectively as compared to 100% and 125% respectively.
  4. Bank credit to NBFCs - risk weight on exposure of scheduled commercial banks shall be increased by 25%. Loans to Housing Finance Companies and NBFCs which are eligible for classification as priority sector in terms of extant instructions shall be excluded.
  5. Review of exposure limits - Regulated Entities ("REs") shall review their sectorial exposure limits for consumer credit by putting in place board approved limits in respect of sub-segments under consumer credit. The limits fixed shall be strictly adhered to and monitored on an ongoing basis by the risk management committee.
  6. Regarding credit appraisal, prudential limits, and exposure, all top-up loans made by REs against movable assets that naturally depreciate such as vehicles shall be treated as unsecured loans.

The instructions listed above shall come into force with immediate effect. All REs shall comply with the provisions of implementing board limits at the earliest and shall implement them by no later than February 29, 2024.

To read the notification click here

MOEFCC NOTIFIES THE VAN (SANRAKSHAN EVAM SAMVARDHAN) RULES, 2023

Ministry of Environment, Forest and Climate Change ("MoEFCC"), vide its notification dated November 29, 2023, has notified the Van (Sanrakshan Evam Samvardhan) Rules, 2023 ("Forest Conservation Rules"), in supersession of the Forest (Conservation) Rules, 2022.

The key provisions of the Forest Conservation Rules are as follows:

  1. provides for the constitution of an advisory committee with regards to grant of approval under Section 2(1) (Restriction on the dereservation of forests or use of forest land for non-forest purpose) of the Van (Sanrakshan Evam Samvardhan) Adhiniyam, 1980 ("Adhiniyam") and under Rule 10(2) (In- Principle approval of the proposal) of the Forest Conservation Rules, along with any other matter connected with the conservation of forests. It also provides for a specific list of persons that are required to be appointed in the advisory committee;
  2. provides for the constitution of a regional empowered committee to examine the proposals that are referred to it under Rule 10(3) of the Forest Conservation Rules and to grant approval for or to reject proposals under Section 2(1) of the Adhiniyam;
  3. provides for the constitution of a project screening committee to examine the completeness of the proposals that are submitted under Section 2(1) of the Adhiniyam, and provides for a specific list of persons that are required to be appointed in the project screening committee;
  4. proposals relating to, inter alia, linear projects and related to forest land up to 40 hectares are required to be examined in the regional office (as established under the Forest Conservation Rules);
  5. proposals relating to, inter alia, dereservation, mining and regularisation of encroachment are required to be examined by the Central Government;
  6. provides for the process of giving a final approval to any proposal, upon the receipt of the in-principle approval from the Central Government; and
  7. provides for certain land which has neither been notified as a forest under the Indian Forest Act, 1927 or any other law, nor is managed as a forest by the Forest Department, to be designated for the purpose of compensatory afforestation, done in lieu of the diversion of forest land for non-forest purpose under the Adhiniyam.

To read the notification click here

To read this article in full, please click here.

© 2020, Vaish Associates Advocates,
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Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

ARTICLE
13 December 2023

Legalaxy - Monthly Newsletter Series - Vol VII - December, 2023

India Corporate/Commercial Law

Contributor

Established in 1971, Vaish Associates, Advocates is one of the best-known full-service law firms in India. Since its inception, it continues to serve a diverse clientele, including domestic and overseas corporations, multinational companies and individuals. Presently, the Firm has its operations in Delhi, Mumbai and Bengaluru.
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