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Authored by Sri Vidhya Kumar

The Ministry of Corporate Affairs (MCA) has vide its notification dated 22nd July 2021, appointed 1st September 2021 as the date on which the provisions of Section 4 of the Companies (Amendment) Act, 2020 (“Amendment Act”) shall come into force.

Vide Section 4 of the Amendment Act, the provisions of clause (b) in sub-section (1) of Section 16 of the Companies Act, 2013 (“Principal Act”) has come into effect.  Section 16 of the Principal Act deals with the provisions relating to rectification of name of a company if it has been registered with a name which is identical or too nearly resembles the name of another company or a registered trademark.  The powers under this Section 16 have been delegated to the jurisdictional Regional Director (RD), under the MCA where the RD can take suo-moto action or an application for rectification can be filed by a registered trademark proprietor based on which directions for changing the similar name will be issued by the RD.

Following are the amendments made to the provisions of Section 16 of the Principal Act vide Section 4 of the Amendment Act:

(a) The time period within which a company, against which a corporate name rectification action has been successfully preferred by a registered trademark proprietor, has been reduced from six months to three months; and,

(b) Further sub-section (3) of Section 16 in the Principal Act has been replaced, whereunder it has now been stated that in case where the said company does not comply with the directions of the RD to change its corporate name pursuant to a rectification action under Section 16 then the RD shall allocate a new name as may be prescribed and the concerned Registrar of Companies (ROC) shall issue a fresh certificate of incorporation based on the new name in place of the old name as directed by the RD. Also, the proviso states that the said company may subsequently change its name from such name in accordance with the provisions of Section 13 of the Principal Act.

The provisions relating to ‘Rectification of name of Company’ under Section 16 (3), earlier, only stated that where such company fails to change its name as directed by the RD, then such a company and its officer-in-default would be punishable with fine as was prescribed thereunder. However, the said penal provision was not being strictly implemented and hence the same did not provide any effective resolution mechanism for registered trademark holders or other companies with similar names, where such companies failed to comply with the direction of the RD. It was this mischief that the MCA has now sought to remedy vide the aforesaid amendments.

In order to implement the procedural aspects related to the aforesaid amended provisions of 16 (3) of the Principal Act, the MCA has also, vide a notification dated 22nd July 2021, introduced Rule 33A under the Companies (Incorporation) Fifth Amendment Rules, 2021, by way of an amendment thereto.

Effect of introduction of Rule 33A under the Companies (Incorporation) Fifth Amendment Rules, 2021 (“Amended Rules”):

As per the new Rule 33A of the Amended Rules, with effect from 01st September 2021, if a Company does not comply with the directions of the RD within a period of three months [hereinafter “non-compliant company”] issued under Section 16 of the Principal Act, the name of the non-compliant company will automatically be transformed to an alpha-numeric name in the manner as follows:

ORDNC*-Year of passing the Direction-Serial number-CIN of the non-compliant Company.

*The term “ORDNC” denotes Order of Regional Director Not Complied with.

Accordingly, the ROC is mandated to make an entry of the new name in the Register of Companies and issue a fresh certificate of incorporation as aforementioned with the prefix of ORDNC.

Once the name has been changed by the ROC upon the directions issued by the RD, the non-compliant company has to change its name to the new alpha-numeric in the name board at the registered office, its common seal, business letters, billheads, notices, publications, hundies, promissory notes, bill of exchanges, website, etc. In addition to this, wherever the name of the Company appears, the statement “Order of Regional Director Not Complied (under Section 16 of the Companies Act, 2013)” shall be mentioned in brackets below the alpha-numeric name.

Factors to be considered before choosing/changing name of the Company:

Promoters of a Company should exercise caution before choosing a company name in relation to their business.

The following factors may, inter-alia be taken into consideration before choosing the name for the company.  As per the provisions of Companies Act, 2013, the name of the company should not:

(a) be identical with the name of an existing registered company; or

(b) resemble too nearly to the name of an existing registered company; or

(c) be such that its use by the company will constitute an offence under any law for the time being in force; or

(d) be such that its use by the company is undesirable in the opinion of the RoC.

Also, some words or expressions like Authority, National, Union, Central, Federal, Nation, Court etc., in the name of a company are allowed to be used only with the prior approval of the RoC.

Conclusion:

The aforementioned amendments have been brought into force with the intention that such companies will be discouraged to sideline the directions of the RD issued under Section 16 and consequentially take necessary procedural actions to change its name within the stipulated timeline of “three months”.  It is pertinent to note that the name of a company plays a very important role in the branding of its products and services in the market in which it operates and any change in its name may also potentially impact its business. Accordingly, if a company fails to comply with the directions of the RD under Section 16 consequent to which its name is amended in a manner that indicates its non-compliance with the orders of a regulatory body, then its image and credibility takes a serious setback, which can also affect its business prospects.

Authored by Padma Akila & Harini Venkatesh

The Hon’ble Supreme Court has recalled the suo motu order dated 27th April 2021 which had extended the limitation period for filing of cases on account of the second wave of the coronavirus pandemic. The Court has decided that the suo motu extension of limitation period will stand withdrawn with effect from 3rd October 2021. In furtherance to the same, the Supreme Court directed the following:

i. In computing the period of limitation for any suit, appeal, application or proceeding, the period from 15.03.2020 till 02.10.2021 shall stand excluded. Consequently, the balance period of limitation remaining as on 15.03.2021, if any, shall become available with effect from 03.10.2021.

ii. In cases where the limitation would have expired during the period between 15.03.2020 till 02.10.2021, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 03.10.2021. In the event the actual balance period of limitation remaining, with effect from 03.10.2021, is greater than 90 days, that longer period shall apply.

iii. The period from 15.03.2020 till 02.10.2021 shall also stand excluded in computing the periods prescribed under Sections 23 (4) and 29A of the Arbitration and Conciliation Act, 1996, Section 12A of the Commercial Courts Act, 2015 and provisos (b) and (c) of Section 138 of the Negotiable Instruments Act, 1881 and any other laws, which prescribe period(s) of limitation for instituting proceedings, outer limits (within which the court or tribunal can condone delay) and termination of proceedings.

This order of the Hon’ble Supreme Court has been made on a hopeful note, considering the lesser possibilities of a third wave of COVID. However, there still exists a mild fear of repetition of the 2nd wave scenario in the minds of the public which was also emphasized by the President of Supreme Court Advocates-on-Record Association.

Authored by Lalitha

The Companies Act (“Act”) mandates that AGM is to be held taking two time periods into account.  For the gap between AGMs, you may refer to our article http://eshwars.com/blog/wp-content/uploads/2020/10/october.html.

For the AGMs to be held for the financial year ending 31st March 2021, in view of the pandemic situation, ROCs felt the need to invoke the powers vested on them, and have given a blanket extension of time to all the companies within its jurisdiction, which are unable to hold their AGM within the due date by a period of two months from the due date by which the AGM should have been held.  It has also been clarified that this extension is not applicable to companies that have made the application for extension of AGM and where the extension has been granted for a period of more than two months.

Authored by Padma Akila & Harini Venkatesh

The Centre vide its Amendment dated 4th November 2020, has reduced the statutory fee applicable for Start-ups and small entities (our note on the earlier amendment can be read here) for patent filing and prosecution.  Now, in their recent amendment dated 21st September 2021, the Department for Promotion of Industry and Internal Trade published the Patents (Amendment) Rules, 2021 wherein educational institutions have also been added to the list of Natural Person, Start-ups and Small Entities,  in order to promote creation, innovation and development of new technologies in the educational sector.

Under the new rules, an Educational Institution has been defined under Rule 2(ca) as “a university established or incorporated by or under Central Act, a Provincial Act, or a State Act, and includes any other educational institution as recognised by an authority designated by the Central Government or the State Government or the Union territories in this regard;”. Further, the term “educational institution” has been inserted to the Rules by way of the second proviso to Rule 7 (1) (i), Rule 7 (3) (ii), Table 1 in the First Schedule and to Form 28.

It is noteworthy to mention that the earlier amendment in Nov 2020, had reduced the filing fee by 80% for Start-ups and Small Entities. The idea behind adding educational institutions to the same realm is to encourage greater participation of the educational institutions and to promote further inventions. Benefits related to the reduced fee for patent filing & prosecution have been extended to all educational institutions irrespective of them being Government-owned/ aided or private universities.

The Patents Rules have consistently been amended in 2016, 2017, 2019 and 2020 to achieve the objective of removing procedural inconsistencies and unnecessary hurdles in the processing of applications thereby accelerating grant/registration and final disposal. Thus, the amendments have resulted in the following initiatives taken by the Department:

1. Augmentation of manpower by recruiting new examiners.

2. Simplified process of applying and granting patents completely through e-filing.

3. Seamless Patent Hearings through Videoconferencing for facilitating speedy and contact-less proceedings.

4. Scheme for Facilitating Start-ups Intellectual Property Protection (SIPP) has been launched to provide facilitators to start-ups for filing and processing of their applications.  Professional charges of such facilitators are reimbursed under the SIPP scheme.

5. A mechanism to lodge feedback/suggestions/complaints in respect of issues related to functioning of the IP offices has been set up in IPO website for the benefit of stakeholders (https://www.pgportal.gov.in/) and appropriate and prompt responses through e-mail are being communicated to such stakeholders’ suggestions/grievances and queries.

6. DPIIT through Cell for IPR Promotion and Management (CIPAM) and in collaboration with the office of CGPDTM is regularly engaged in dissemination of information and knowledge to IP stakeholders by way of participation in awareness activities in IPR, conducted for schools, universities, industries, legal and enforcement agencies, and other stakeholders in collaboration with industry Associations in the country.

 

Authored by Padma Akila

Britain’s exit from the European Union (EU) on 31st January 2020, is one of the biggest changes in modern commercial relations. It did not only result in a political challenge for diplomats but also a legislative one, giving rise to uncertainty and ambiguity regarding the effects of the post-transition period in the legal domain.

The United Kingdom (UK) and EU had entered into a Withdrawal Agreement which led the UK to depart the EU on 31st January 2020 followed by a transition period (1st February 2020 to 31st December 2020) to begin.

This exit as is commonly and popularly referred to as “Brexit” from the EU community has also had important spillover effects and ramifications for IP owners and more so specifically for trademark and design registration holders in the EU community. Under the Withdrawal Agreement between the UK and the EU, Trademark holders in the EU (which erstwhile included UK as well) can apply to register the same right as a stand-alone right in the UK right within nine months after the end of the transition period, this being up to and including 30 September 2021.

In this write-up, we briefly analyse the important steps that brand owners may need to pro-actively undertake to ensure continued protection of their trademarks in the UK on a stand-alone basis irrespective of their impending trademark applications filed before the EU Intellectual Property Office (EUIPO) of which office the UK was earlier part of. The following table provides the insights regarding the Brexit’s impact on existing trademark applications/registrations in EU from a trademark holder’s perspective:

 

Trademarks registered in the EU on or before 31st December 2020 (national or international application) Automatic extension of statutory protection in UK on a stand-alone basis for a trademark registered on or before 31st December 2020 in EU without any need for filing any form or application with the UK IP Office. Statutory protection will continue in the UK.
Trademark applications in the EU (which erstwhile included UK as well) which are pending registration or have been registered after the 31st December 2020 Automatic creation of UK comparable marks will not apply to those trademarks pending or registered after 1st January 2021 in EU and No statutory protection will be granted in UK for the trademarks pending or registered after 1st January 2021 unless an application along with the payment requisite fees[1] is filed before 30th September 2021 (nine months) before UK IP Office. The application will be allowed subject to UK examination and publication requirements. Statutory protection may be extended to applications filed within nine months after the end of the transition period viz., on or before 30th September 2021.

 

As far as Industrial Design rights are concerned, the Registered Community Designs (RCDs), unregistered Community designs (UCDs) and International (EU) designs will no longer cover the UK. From 1st January 2021, anyone wanting to protect their designs through registration in both the EU and the UK will need to file separate RCD and UK registered design applications.

As regards the status of patents, the European Patent Office (EPO) is not an EU agency and thus the UK leaving the EU would not affect the European patent system. Existing European patents covering the UK also remain unaffected and the protection is granted by the EPO, is valid in the UK even after Brexit.

Accordingly, brand owners in India who have filed trademark applications in the EU community may be required to take pro-active measures on or before the 30th September 2021 to ensure that their trademarks continue to be protected in the UK on a stand-alone basis apart from in the EU.

[1] A Statutory fee of £170 for the first class of goods or services will apply, with an extra £50 payable per additional class.

 

 

Authored by Padma Akila

With the rapid advent of globalisation and the world becoming one big marketplace for trade and commerce, brand owners have also often indulged in trademark enforcement in foreign territories based on cross-border reputation attained by their trademarks.

One such example is the recent instance where AMUL, one of the largest food brands in India which is being marketed by Kaira District Co-Operative Milk Producers’ Union Limited (“Kaira/Plaintiff/AMUL India”) has moved the Federal Court of Canada against Amul Canada and 4 others. The websites of AMUL displays the trademark and its tag line as well which is a registered and well-known trademark not only in India but also in Canada. Sometime in January 2020, Kaira found that the defendant had blatantly copied their trademark along with tagline and created a page for it in LinkedIn. It was also found that the defendant (AMUL Canada) started selling and marketing dairy products using the page they created on LinkedIn. The defendants claimed themselves to be Kaira based on the information available on their website. The defendants had copied everything about Kaira’s well-known trademark without changing a thing which was likely to cause visible confusion among the public. The Defendant also appeared to have employees in Canada even though the Plaintiffs had never licensed nor provided consent for either Amul Canada or any of the four individual Defendants to use the Plaintiffs’ trademarks and copyrights in any manner. Following the evasive behaviour of the Defendants and the fact that the Plaintiffs had exhausted all reasonable attempts in demanding the Defendants to cease and desist their conduct both prior to and through the commencement of these proceedings, the court held that the Plaintiffs had the right to bring the Motion for Default Judgment in ex-parte manner to stop the blatant abuse of their intellectual property.

Passing off has been statutorily codified in section 7(b) of the Trademarks Act, RSC 1985, c T-13 (Trademarks legislation of Canada). The elements for establishing passing off are- the existence of goodwill; the deception of the public due to misrepresentations; and actual or potential damages to the plaintiff. The elements of passing off was established in this case obviously and thus, the Federal Court of Canada held that the Defendants had engaged in deliberate deceitful conduct and had channelled public attention to its business in such a way as to cause confusion in Canada between the goods and business of the Defendants, and those of the Plaintiffs. Accordingly, the Bench stated that there were clearly potential damages that could have been caused, either through sales, marketing, distribution, and/or recruiting employees, through the unauthorized disguise of Amul Canada. Hence, concluding that each of the three elements was met in the instant case, the Bench stated, “Not only has the Amul brand existed for well over 50 years and is advertised globally through online and other channels – and thus acquired distinctiveness over time – and the volumes of milk and cheese distribution illustrate that Amul products have a reputation within at least a certain segment of consumers of its dairy products in Canada.” It is also pertinent to note that Kaira was awarded damages and costs for the trademark and copyright infringement actions indulged in by the Defendants.

The above judgement of the Canadian court is certainly a welcome decision for Indian brand owners and businesses who propose to take their brand and business globally.

Authored by Praveen Pandian

Applicant: Vansh Capital Private Limited.

Date of the Guidance: 05th August 2021.

Factual Background:

1. Vansh Capital Private Limited (hereinafter referred to as ‘Applicant’) is a SEBI registered non-individual investment adviser.

2. The applicant has a separately identifiable department for distribution and execution services of Equity, Derivatives, Commodity, Currency and Mutual Fund.

3. The applicant is also the authorised person of a registered broker Sharekhan Limited, and thereby providing access to the stock exchange’s trading platform as the agent of the broker.

4. The applicant to provide implementation/execution to its investment advisory clients, was in the process of entering into an arrangement of zero commission/ brokerage sharing with the broker for whom it was an authorised person.

Guidance sought:

1. Whether the applicant being an authorised person of trading member give implementation/ execution services to its investment advisory clients?

2. What should an investment advisor do with the amount received due to an unavoidable situation from SEBI registered intermediary for brokerage/ commission sharing of investment advisory clients?

3. Whether the investment adviser should return the brokerage/ commission amount to SEBI registered intermediary? (or)

4. Whether such amount received to be deposited with SEBI established Investor Protection and Education Fund (IPEF)?

Provisions Involved:

Regulation 15(2)[i] and 22A[ii] of SEBI (Investment Advisers) Regulations, 2013

Informal Guidance by SEBI:

1. SEBI noting that apart from being an investment advisor, the applicant is also an authorised person of the trading member, citing regulation 15(2) and 22A of SEBI (Investment Advisers) Regulations, 2013, confirmed that the applicant can provide implementation services to its advisory clients, but that it cannot receive any direct or indirect consideration, either from its clients or from any other entity for such implementation services at any point of time including the investment advisory service period.

2. As regards the second query, SEBI stated that it is hypothetical in nature and declined to respond to the same, as it does not cite relevant legal provisions, because of which it cannot be covered under the SEBI (Informal Guidance) Scheme 2003.

The letter of SEBI can be read at: https://www.sebi.gov.in/enforcement/informal-guidance/aug-2021/informal-guidance-sought-by-vansh-capital-private-limited-regarding-sebi-investment-advisers-regulations-2013_51814.html

“As per the Informal Guidance [Scheme] 2003 of SEBI, the guidance provided is applicable only to the Applicant, and is should not be construed as a conclusive decision or determination of any question of law or fact by SEBI, and is also not an Order u/S 15T of SEBI Act, 1992”

[i]  Regulation 15(2) of SEBI (Investment Advisers) Regulations, 2013:

An investment adviser shall not receive any consideration by way of remuneration or compensation or in any other form from any person other than the client being advised, in respect of the underlying products or securities for which advice is provided.

[ii] Regulation 22A of SEBI (Investment Advisers) Regulations, 2013:

(1) Investment adviser may provide implementation services to the advisory clients in the securities market:

Provided that investment advisers shall ensure that no consideration including any commission or referral fees, whether embedded or indirect or otherwise, by whatever name called is received; directly or indirectly, at investment adviser’s group or family level for the said service, as the case may be.

(2) Investment adviser shall provide implementation services to its advisory clients only through direct schemes/products in the securities market.

(3) Investment adviser or group or family of an investment adviser shall not charge any implementation fees from the client.

(4) The client shall not be under any obligation to avail of implementation services offered by the investment adviser.

Authored by Aishwarya Lakshmi VM

Background:

In our earlier Blog, we had written about the introduction of System Driven Disclosures (“SDD”) by SEBI through its Circular dated 09th September 2020. As per the said Circular, once the listed company disseminates the PAN / Demat Account Number of:

1. the promoters,

2. members of the promoter group,

3. designated persons and

4. directors

(Hereinafter collectively ‘Identified Persons’) to the Depositories, the said Depositories will track the transaction made by the Identified Persons in all the exchanges where the company is listed and inform to the Stock Exchanges, who in turn will publish the details of the transactions in their respective websites on a T+2 basis. As per the said Circular the obligation of the Identified Persons and the Company to make a manual disclosure under Regulation 7(2) of the SEBI (Prohibition of Insider Trading) Regulations, 2015 would continue until 31st March 2021. Thus, there was a dual manner of disclosing the trades i.e., manual and SDD.

SDD stands extended:

As per the 09th September 2020 Circular, at Para 4, it was mentioned that SEBI was introducing the SDD for trading in

a) equity shares and

b) equity derivative instruments i.e., Futures and Options.

Meanwhile as per the Circular of SEBI dated 16th June 2021 (Circular Number SEBI/HO/ISD/ISD/CIR/P/2021/578), SEBI extended the application of SDD, with effect from 01st July 2021,  to trades by the Identified Persons in Listed Debt Securities as well.

SEBI scrapes off Manual Disclosures:

Keeping the “ease of doing business” in mind and after having obtained confirmation from the Stock Exchanges and the Depositories that they have implemented SDD in line with the 09th September 2020 Circular, SEBI relaxed the necessity of making manual disclosures through SEBI Circular dated 13th August 2021. As per Para 4 of the said Circular, SEBI has clarified that for listed companies who have complied with requirements of the circular dated 09th September 2020, the manual filing of disclosures as required under Regulation 7(2)(a) & (b) of  PIT Regulations is no longer mandatory.

Conclusion:

Though the Circular is a respite from making dual disclosures for trades executed in the Equity and F&O Segment, it has not given any reference to trades in the Debt Segment. This implies that the manual disclosure for the Debt Segment would continue until further regulatory updates regarding the same.

Authored by Aishwarya Lakshmi VM

Pursuant to the decision taken by SEBI in its Board Meeting held on 29th June 2021, SEBI has merged the following Regulations into a single new Regulation –

1. SEBI (Issue and Listing of Debt Securities) Regulations, 2008.

2. SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013.

The new SEBI (Issue and Listing of Non-Convertible Securities) Regulations 2021 (hereinafter “NCS Regulations”) has been introduced with effect from 09th August 2021. Pursuant to the introduction of the NCS Regulations, the provisions of SEBI (LODR) Regulations 2015 has undergone a change and the same was introduced through SEBI (LODR) 4th Amendment Regulations, 2021 dated 13th August 2021.

Disclosures in Financial Results:

As per Regulation 52 of LODR, any entity that has listed debt securities or Non-Convertible Redeemable Preference Shares (NCRPS) was earlier required to disclose certain line items along with the half-yearly/annual financial results. Pursuant to the Amendment, the following details need NOT be disclosed hereafter.

(a) credit rating and change in credit rating (if any);

(b) asset cover available, in case of non-convertible debt securities;

(c) previous due date for the payment of interest/ dividend for non-convertible redeemable preference shares/ repayment of principal of non-convertible preference shares /non-convertible debt securities and whether the same has been paid or not; and,

(d) next due date for the payment of interest/ dividend of non-convertible preference shares /principal along with the amount of interest/ dividend of non-convertible preference shares payable and the redemption amount;

Annual Undertaking on providing documents to Debenture Trustees:

As per Regulation 57(2), earlier the debt-listed entity was required to provide an annual undertaking to the Stock Exchange that it has provided all the requisite documents to the Debenture Trustees as per the Trust Deed and SEBI (ILDS) Regulations, 2008. The same has been done away with pursuant to the Amendment.

Financial Results to Security-holders:

Earlier as per Regulation 58(1)(d), half-yearly communications of Financial Results under Regulation 52(4) and Certificate of taking note of the contents a per Regulation 52(5) were required to be sent to the security-holders. Now, this requirement has been done away with.

Apart from the abovementioned relaxations, Regulations 58 and 61 have also undergone changes to harmonize the usage of the terminologies in consonance with the NCS Regulations.

Authored by Padma Akila

Securities and Exchange Board of India (SEBI) vide order dated 9th August 2021, fined Rs 12 lakh on the former employee Mr. Prateek Sarawgi of Infosys Ltd. (“Infosys/Company”), for indulging in insider trading during the trading window closure while being the Designated Person of the Company. Mr. Prateek Sarawgi (“Noticee”) was working as Associate Manager- Business Finance with Infosys while indulging in the alleged insider trading activity.

Findings of the investigation by SEBI:

1. It was observed that Infosys had announced financial results for the quarter ended December 31, 2016, on January 13, 2017, on BSE and NSE between 09:04 AM and 09:18 AM. As per the Company’s submission, the trading window was closed from December 16, 2016, to January 15, 2017, with regard to financial results for the quarter ended December 2016.

2. The Noticee, an “insider” as stated under Regulation 2(1)(g) of the SEBI (PIT) Regulations, 2015, (“PIT Regulations”) had bought 100 shares of Infosys on January 12, 2017, and bought and sold 400 shares and 75 shares of Infosys respectively on January 13, 2017. Thus, it was alleged that the Noticee while in possession of unpublished price sensitive information (“UPSI”) by trading in the scrip of Infosys, had violated the provisions of Sections 12A(d) and 12A(e) of SEBI Act, 1992 read with Regulation 4 (1) of PIT Regulations.

While this was the case identified by SEBI, the Noticee was provided with several opportunities to show cause and the Noticee did not reply, nor did he avail the opportunity of personal hearing to advance his submissions before the Adjudicating Officer (“AO”) from SEBI. “In such circumstance, the allegations in the SCN (Show Cause notice) against the Noticee are taken up for consideration, on the basis of the material available on record,” said the AO in his order.

Adjudicating Officer’s findings and decision

The Order stated that declaration of financial results by the Company is UPSI which is of the nature that is not generally available and upon becoming generally available and is likely to materially affect the price of the securities. SEBI determined the period of UPSI to be January 6, 2017, to January 12, 2017. The Noticee was part of the presentation team and responsible for making PPT of financial result of the quarter ended December 2016. The presentation team had the information regarding organisation-wide revenue and cost numbers from January 08, 2017, to January 13, 2017, the day of the Company’s results and thus the Noticee was aware of the financial results of the Company. Hence, the Noticee was an insider who was in possession of UPSI.

Further, the AO relied upon the decision of the Hon’ble Securities Appellate Tribunal (SAT) in Shri E. Sudhir Reddy vs. SEBI wherein it was inter-alia held that “Knowledge of such unpublished price sensitive information in the hands of persons connected to the company puts them in an advantageous position over the ordinary shareholders and the general public. Such information can be used to make gains by buying shares anticipating rise in the price of the scrip or it can also be used to protect themselves against losses by selling the shares before the price falls. Such trading by the insider is not based on level playing field and is detrimental to the interest of the ordinary shareholders of the company and general public.”

Based on the above instances, coupled with the ratio laid down by the Hon’ble SAT in the aforementioned case, it was held that the Noticee in his official capacity had access to PSI pertaining to the financial position and earnings of the company and on the basis of the said information, had bought 500 shares and sold 75 shares of Infosys, while in possession of UPSI. Thus, violating Section 12A(d) and 12A(e) of SEBI Act read with Regulation 4 (1) of PIT Regulations.

The Order also stressed upon the fact that the objective of framing a Model Code of Conduct (CoC) under the PIT Regulations, is to prevent insider trading and prevent misuse of the PSI which undermines the confidence of investors. Further, it was stated that from the various provisions stipulated under the Model CoC for Listed Companies under the PIT Regulations, it was clear that these provisions are intended to prevent the possible abuse of unfair insider practices by the Company’s management/officials/employees etc., The CoC for listed companies under Regulation 9 of the PIT Regulations makes it clear that these provisions are formulated with a view to serve as a guiding charter for all concerned persons associated with the functioning of the company and their trading in its securities. In this regard, in the instant case, it is pertinent to note that the transactions executed by the Noticee were during the period when the trading window was closed. Thus, it was concluded that the Noticee being an insider had also violated the provisions of Clause 4 of CoC prescribed under Schedule B of Regulations 9(1) and 9(2) of PIT Regulations. Having concluded that the Noticee acted in violation of the abovementioned provisions of the PIT Regulations, the AO imposed a penalty of Rs 12 lakhs on him.

Authored by Adit N Bhuva

Background:

Companies Act permits the Board and committee of the Board to conduct their meetings through Video Conference (“VC”) subject to compliance with the procedures prescribed thereunder.

However, currently, there are certain matters, which requires the presence of a quorum of the board/committee at one place viz:

1. approval of the annual financial statements;

2. approval of the board’s report;

3. approval of the prospectus;

4. audit committee meetings for consideration of financial statements including consolidated financial statements, if any, to be approved by the board.

5. approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.

Due to Covid-19 Pandemic, to enable social distancing and still at the same time ensure the continuation of the business, the Ministry of Corporate Affairs (MCA) had vide various notifications waived the requirement of the physical presence of directors in the board meeting, in respect of matters which required the quorum (minimum number of directors to constitute a valid meeting) to be present in one place. This relaxation was available till 30th June 2021.

Amendment:

Now the MCA vide its notification dated 15th June 2021, has altogether removed the requirement of a quorum to be present in one place.

Authored by Adit N Bhuva

The Ministry of Corporate Affairs has on 23rd June 2021, allowed all companies to conduct their extra-ordinary general meeting of shareholders through VC or transact items through postal ballot till 31st December 2021.

We had in our earlier article discussed the procedure for conducting the general meetings by VC and the same can be accessed in the following link – http://eshwars.com/blog/clarification-on-passing-of-shareholder-resolutions-during-covid-19-conduct-extra-ordinary-general-meeting-egm-of-shareholders-remotely/

Authored by Adit N Bhuva

Brief background:

The companies are required to prepare their financial statements in conformity with the accounting standards notified by Ministry of Corporate Affairs. All the companies were required to follow Companies (Accounting Standards) Rules, 2006 (“AS 2006”).

Thereafter, Companies (Indian Accounting Standards), Rules, 2015 (“Ind AS”) were notified from 1st April 2015 and the Ind AS was made applicable for the accounting periods beginning on or after 1st April, 2016, to certain class of companies, in a phased manner and currently the following classes of Companies are required to follow Ind AS (“Ind AS Companies”):

1. All the listed Companies (equity or debt securities) being listed on any stock exchange in India or outside India.

2. All the Companies who are in the process of being listed on any stock exchange in India or outside India

3. All the unlisted companies having net worth of rupees two hundred and fifty crore or more

4. All the holding, subsidiary, joint venture or associate companies of companies covered above.

Hence currently the following companies are required to follow AS 2006:

1. All Companies other than Ind AS Companies specified above

2. Companies whose securities are listed or are in the process of being listed on SME exchange as referred to in Chapter XB or on the Institutional Trading Platform without initial public offering in accordance with the provisions of Chapter XC of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009.

Replacement of AS 2006:

The Ministry of Corporate Affairs (‘MCA”), has on 23rd June 2021 notified the Companies (Accounting Standards) Rules, 2021 (“AS 2021”) in supersession of the Companies (Accounting Standards) Rules, 2006. This is applicable for the accounting period starting on or after 1st April 2021.

Hence the Companies to whom AS 2006 was applicable is required to follow AS 2021 from financial year April 2021-22 onwards.

Authored by Ammu Brigit

The medical field witnessed major ramifications in its regulatory structure in the recent times. Age-old laws were repealed, and new laws were introduced in the field of medical education system, Indian system of medicine and allied healthcare profession. The National Medical Commission Act 2019, National Commission for Indian System of Medicine 2020 and National Commission for Allied and Healthcare Profession Act 2021 were introduced to keep the medical field in pace with the time.

National Medical Commission Act 2019:

Prior to September 2020, the medical education in India was governed by Indian Medical Council Act 1956 (IMC Act) and the Medical Council of India (MCI) was the statutory body constituted under IMC Act which regulated and standardised medical education in India.  The 92nd report submitted by the Department-Related Parliamentary Standing Committee on Health and Family Welfare in the year 2014 raised the need of revamping the statutory MCI. The committee commented on MCI’s failure in producing quality medical professional in the country due to its failure in maintaining uniform standards in medical education, development of merit in admission especially in private institutions etc. The Committee, being convinced that MCI can no longer be entrusted with the regulation of medical education and mere amendment to IMC cannot solve the issues faced, recommended for the constitution of National Medical Commission with four separate boards delegated with separate responsibilities. The Hon’ble Supreme Court, in Modern Dental College and Research Centre & Ors vs. State of Madhya Pradesh & Ors (AIR 2016 SC 2601) had also directed the Central Government to take appropriate actions based on the Committee Report. Thus, the National Medical Commission Act 2019 (NMC 2019) was enacted and notified in August 2019, effective from 9th September 2020 repealing MCI Act.

The NMC 2019 provides for the constitution of National Medical Commission and four autonomous boards namely- the Under-Graduate Medical Education Board; the Post-Graduate Medical Education Board; the Medical Assessment and Rating Board; & the Ethics and Medical Registration Board. In addition, the NMC 2019 provides for maintenance of national and state register of medical professionals, recognition of medical institutions within and outside India, conduct of National Eligibility cum Entrance Test for admission to undergraduate and post graduate medical education and a National Exit Test for granting license to medical professionals. The National Medical Commission was constituted effective from 25th September 2020 dissolving MCI.

National Commission for Indian System of Medicine 2020:

The medical education of Indian system of medicine and practice was regulated by Indian Medicine Central Council Act 1970 (IMCC Act) and Central Council for Indian Medicine (CCIM) was the regulatory body. An amendment bill was introduced in the year 2015 to streamline issues of granting license to medical colleges, membership etc. However, this bill was not passed. Later, the Central Government constituted a Committee on Reform of Indian Medicine Central Council Act 1970 and Homeopathy Central Council Act 1973. This committee commented that as IMCC Act was drafted in line with the IMC Act, the challenges faced by the IMC and CCIM were similar and therefore proposed a replacement of IMCC Act and the constitution of National Commission for Indian System of Medicine (NCISM). The committee also recommended the inclusion of Naturopathy, Yoga and Unani under the purview of NCISM.

Pursuant to the committee report, National Commission for Indian System of Medicine Act 2020 (NCISM Act) was legislated and notified on 20th September 2020. NCISM provides for the constitution of NCISM and its autonomous boards namely (i) Board of Ayurveda; (ii) Board of Unani, Siddha and SoWa-Rigpa; (iii) the Medical Assessment and Rating Board for Indian System of Medicine; and (iv) the Board of Ethics and Registration for Indian System of Medicine. The NCISM also legislates for conduct of (a) National Eligibility cum Entrance Test, and (b) National Exit Test before obtaining practice license. Legal recognition is also accorded for the constitution of state medical council(s), and maintenance of national and state register for practitioners, & recognition of medical institutions within and outside India.

National Commission for Homeopathy Act 2020:

The National Policy on Indian Systems of Medicine and Homeopathy 2002 commented that homeopathy training institutes lacked qualified teachers and the quality of training is not of requisite standard. Later, the Committee on Reform of Indian Medicine Central Council Act 1970 and Homeopathy Central Council Act 1973 also recommended the replacement of Homeopathy Central Council Act 1973 (HCC Act).

In the above background, HCC Act was repealed, and National Commission for Homeopathy Act 2002(NCH Act) was enacted on 20th September 2020. Similar to NCISM Act, HCC Act provides for the (i) constitution of a National Commission for Homeopathy, Homeopathy advisory council and autonomous boards(ii) establishment of National Eligibility Cum Entrance Test, National Exit Test, Post- Graduate National Entrance Test and National Eligibility Test for Teachers for Homeopathy (iii) constitution of State Medical Council (iv) maintenance of central and state registers for practitioners (v) recognition of medical institutions within and outside India.

National Commission for Allied and Healthcare Profession Act 2021:

With the aim to implement a patient centric approach and multidisciplinary team approach, Department-Related Parliamentary Standing Committee on Health and Family Welfare in its 117th Committee Report proposed the National Commission for Allied and Healthcare Professions Bill, 2020. Furtherance to which, the National Commission for Allied and Healthcare Profession Act 2021(NMAHP Act) was enacted in March 2021 with the aim to provide a regulatory framework for the education and services by allied and healthcare professionals, assessment of institutions, maintenance of a central ad state register.  The NMAHP Act defines allied health professional as:

an associate, technician or technologist who is trained to perform any technical and practical task to support diagnosis and treatment of illness, disease, injury or impairment, and to support implementation of any healthcare treatment and referral plan recommended by a medical, nursing or any other healthcare professional, and who has obtained any qualification of diploma or degree under this Act, the duration of which shall not be less than two thousand hours spread over a period of two years to four years divided into specific semesters”.

Like the other two enactments, the NMAHP Act provides for the constitution of a commission and autonomous boards. The commission will be National Commission for Allied and Healthcare Profession, the autonomous boards are – (i) Under-graduate Allied and Healthcare Education Board; (ii) Post-graduate Allied and Healthcare Education Board; (iii) Allied and Healthcare Professions Assessment and Rating Board; and (iv) Allied and Healthcare Professions Ethics and Registration Board. In addition, this law also provides for constitution of individual state councils for allied healthcare professional.

Conclusion:

The constitution of national commissions and autonomous board, maintenance of central and state registers are the common provisions under the three legislations briefed above, which aims bringing in administrative changes in medical education and profession. Similar to the All-India Bar Examination, the certification exam conducted by Bar Council of India for lawyers, these legislations have also introduced National Exit Test for medical practitioners in modern and Indian system of medicine, as well as for allied health care professions to ensure quality in medical profession. It is apparent from the objectives of these legislations that the government intends to bring in uniformity and transparency in all fields of medicine.

Authored by Padma Akila & Vishaka S

Digital entertainment and online gaming platforms have assumed unprecedented user and subscription base over the last few years and the pandemic has further provided the timely thrust that such businesses needed in a long time. In this article we will briefly walk you through the basic legal aspects prevalent in India that govern the business of online and virtual gaming.

The online gaming business boomed and is still continuing to receive its share of active gamers who are fascinated by the digitally developed conventional games that enable you to play with other gamers from any other part of the world or in certain cases, with the computer technology itself! . With the technological development that has resulted in playing games with computer through artificial intelligence-based software designed for the same, certain online games have again fallen under the radar to settle the dispute of whether they are a game of chance or game of skill.

In this regard, it is pertinent to note that under the Constitution of India, the state legislatures have been entrusted with the power to frame state specific laws on betting and gambling (games of chance). The Public Gambling Act, 1867 (‘Public Gambling Act’) which prohibits all activities related to gambling, has been adopted by several states including Uttar Pradesh, Madhya Pradesh, Chandigarh and Haryana, while other States like Andhra Pradesh, Delhi, Gujarat, Meghalaya and Goa among many others have resorted to enacting their own gambling legislations. The states of Sikkim and Nagaland in India have enacted legislations pertaining exclusively to ‘Online Gaming’ within their territory and in states like Telangana, Assam and Orissa gambling is entirely prohibited irrespective of the medium.

Recently, a petition had been filed in the Bombay High Court by Keshav Muley, an office-bearer of a regional political party, that sought registration of an FIR against the makers of a game application called ‘Ludo Supreme’ alleging that the game involves only chance/gamble and there was no skill required to play the game. According to the petition, one could play the game “Ludo” downloaded through the Ludo Supreme App by betting money and the bank account could be linked to the application and money could be deposited with the application’s electronic wallet wherein the player winning the game would take all the money put in by the rest of the players and a certain amount would be deducted by the application service provider as its share of remuneration. In the said petition filed, it has been contended that Ludo is a “Game of Chance” and that by throwing dice in it, the player does not know which number will appear and thus, there is no application of skill of the player. On this basis, this petition claims that the service of offering online Ludo gaming by the company, tantamount to gambling service. Further, the pop-up ads in the said app seemed to encourage people at large to play the game of ludo with an assurance that one would only win money and not lose any, as contended in the petition.

At this juncture, it is pertinent to note that among judicial precedents concerned with gaming, the courts have recognised that no game is a game of pure skill alone and almost all games involve at least the minutest of luck, but yet can circumvent the stigma of gambling, if the skill involved is higher than the chance.

THE OLDEN BUT GOLDEN HOLDINGS!

One of the earliest rulings on this aspect is probably that was laid down by The Hon’ble Supreme Court, in the matter of State of Bombay v. R.M.D. Chamarbaugwala [MANU/SC/0019/1957], wherein it had interpreted the words “mere skill” to include games which are preponderantly of skill. It held that if a game, is preponderantly a game of skill, but also has an element of chance, it would nevertheless be a game of “mere skill”.

In, State of Andhra Pradesh v. K. Satyanarayana and Ors. [MANU/SC/0081/1967] the Apex Court held that famous cards game rummy is not a game entirely of chance and it requires certain amount of skill because the fall of the cards has to be memorised and the building up of Rummy requires considerable skill in holding and discarding cards.

These judgements obviously were delivered much before the dawn of the era of online gaming and did not at that point in contemplate online rummy that involves playing not with other individuals but with computer technology where there is no skill involved from all the sides, thereby making it a game of chance.

Similarly, in K.R. Lakshmanan Vs. State of Tamil Nadu and Ors [MANU/SC/0309/1996] the Supreme Court of India ruled that horse racing, chess, rummy, golf and baseball are all games of skill. It further held that betting on horse racing was a game of skill as it involved judging the form of the horse and the jockey, and the nature of the race, among other variable factors.

While taking a contrary view on playing rummy for stakes, In 2012, in the case of Tamilnadu v Mahalakshmi Cultural Association[MANU/TN/0741/2012 : 2012 (2) CTC 484], the Madras High Court, observed that although the game of rummy played with 13 cards is a game of skill predominantly, if it is played for stakes or any club or association makes profit out of the same, then it would tantamount to gambling and attract appropriate penal provisions.  However, the Supreme Court vide order dated 18th August 2015 allowed the poker club Mahalakshmi Cultural Association to withdraw its Special Leave Petition as the members of the club had been acquitted of all the criminal charges in this regard by the trial court and specifically brought on record that the observations contained in the High Court order did not survive.

THE MODERN AND ACCORDANT WAY!

Recently, in the matter of the well-known fantasy sports game Dream 11 there were cases filed in various parts of India. The first Indian court to rule that fantasy sports games are games predominantly based on skill was the High Court of Punjab & Haryana in the matter of Varun Gumber Vs. Union Territory of Chandigarh and Ors [MANU/PH/1265/2017], concerning the online fantasy sports based game “Dream 11”. In this case it was observed that “It has been found that horse racing like foot racing, boat racing, football and baseball is a game of skill and judgment and not a game of chance. The aforementioned finding squarely applies to the present case. Even from the submissions and contentions of respondent-company and factual position admitted in writ petition, I am of the view that playing of fantasy game by any participant user involves (selecting a) virtual team by him which would certainly requires a considerable skill, judgment and discretion”. Subsequently, in Gurdeep Singh Sachar Vs. Union of India and Ors [MANU/SCOR/76102/2019], the Bombay High Court found that success in Dream 11’s fantasy sports depend upon user’s exercise of skill based on superior knowledge, judgment and attention, and the result thereof is not dependent on the winning or losing of a particular team in the real world game on any particular day. It was concluded that it is undoubtedly a game of skill and not a game of chance. Further, the Jaipur High Court, in Chandresh Sankhla vs The State of Rajasthan [MANU/RH/0182/2020], held that the result of a fantasy game depends on skill of the participant and not sheer chance, and winning or losing of the virtual team created by the participant is also independent of the outcome of the game or event in the real world. Further it was held that the format of online fantasy game is a game of mere skill, and it has protection under Article 19 (1) (g) of the Constitution.

Further, while considering a petition pertaining to online gambling in cyber space, the Gujarat High Court in the case of Amit M Nair v State of Gujarat [MANU/GJ/1308/2020], categorically directed the state to monitor online gambling games and take appropriate action under the law and also examine whether such games result in money laundering or violation of foreign exchange laws as well.

The Law Commission of India headed by Justice B. S. Chauhan, a former judge of the Supreme Court was mandated by the Government of India to make recommendations on the possibilities of legalization of sports betting in India and the review of Gaming Legislations with a view to provide for a Central licensing regime.

The Law Commission received public comments and held active discussions with all stakeholders Thereby developing a robust report in support of a regime to legalise the already burgeoning gambling industry in India. The report on legalizing betting and gambling in India released in July 2018, contained the following key recommendations:

1. Need for autonomous regulation for gambling and betting industry.

2. Certain skill centric games should be made an exception to the prohibition on “gambling”.

3. Only an operator holding a valid license granted by the game licensing authority should be allowed to provide betting and gambling services.

4. Two categories of gambling were suggested i.e., proper and small gambling based on higher and lower income groups. A person belonging to higher income group would be able to put higher stakes belonging to the ‘proper gambling’ category whereas a person belonging to lower income must confine to ‘small gambling’ and cannot be allowed to stake higher amounts.

5. All betting and gambling transactions ought to be linked with Aadhaar/PAN card of the operator and the participant/player to protect the public from aftereffects and increase transparency.

6. The enactment related to betting and gambling should be enacted in such a way that ensures protection of the vulnerable section of society from exploitation.

7. Any income derived from such activities should be made taxable under the applicable tax laws in India.

8. Transaction between operators and participant/player to be made mandatorily cashless and any cash transaction should be penalized by an enactment.

Internet gambling presents essentially many of the same concerns that the traditional gambling activities have raised throughout the years like the likelihood of addiction, the possibility of fraud etc. The supporters of a ban of Internet gambling maintain that outlawing the activity for all individuals is the only way to ensure that a segment of the population, children, will be adequately protected from corruption.

However, it is evident from judicial interpretation in India that the question of whether a particular game is a game of skill or chance is to be decided basis facts of each case. As much as there is uniformity in approach of the courts in India while deciding what constitutes a game of skill or chance, with the advent of technologies, the latest online games seem to stand on a thin line between skill or chance as online games are still gray areas in Indian legislations. It will be worth the wait to see if the petition against the beloved Ludo will prompt the enactment of an exclusive legislation.

Authored by Lalitha Karuna. 

SEBI at its board meeting held on 25th March 2021 had approved several amendments to SEBI Regulations, some of which were covered by us in our All Things Listed Issue of April 2021. The amendments approved specifically to SEBI (LODR) Regulations, 2015 at the meeting was listed out by us in our article.

Subsequently, SEBI vide its notification No. SEBI/LAD-NRO/GN/2021/22 dated 05th May 2021 issued Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Second Amendment) Regulations, 2021 which inter alia provides for amendments apart from those that were listed out in the Board Meeting Outcome. It may be interesting to note that the outcome document cautiously used the words “Some of the key amendments are as follows” in Para V.1.

Listed below are those Amendments to the SEBI (LODR) Regulations, 2015 apart from those that were covered earlier:

Regulation Prior to 05.05.2021 Post Amendment Effect of the Amendment
2(zn) Nil SEBI has introduced a definition for ‘Working Day’ to mean working days of the stock exchange where the securities of the entity are listed. Clarification is given to the stakeholders regarding the terminology ‘Working Day’.
Regulation 7(3) Compliance Certificate from Compliance Officer and Authorized Representative of the RTA that share transfer facility are maintained either in-house or with the RTA to be submitted to the Stock Exchange within thirty days from the end of each half year. Compliance Certificate from Compliance Officer and Authorized Representative of the RTA that share transfer facility are maintained either in-house or with the RTA to be submitted to the Stock Exchange within thirty days from the end of each financial year. What was earlier half-yearly compliance has been amended to be an annual compliance.
Regulation 25(3) Independent Directors meeting without the presence of non-independent directors was required to be held once in a year. Independent Directors meeting without the presence of non-independent directors is required to be held once in a financial year. Schedule IV, Para VII of the Companies Act, 2013 mandates the ID Meeting to be held once in a ‘financial year’. This Amendment to Regulation 25(3) streamlines compliance between LODR and CA13.
Regulation 44(3) Details regarding the voting results of General Meeting were to be submitted to the Stock Exchange within 48 hours of conclusion of the General Meeting. Details regarding the voting results of General Meeting are to be submitted to the Stock Exchange within 2 Working Days of conclusion of the General Meeting. This Amendment has provided more clarity to the submission of Voting Results.

Considering a scenario wherein the GM concluded on Friday at 04.30 PM, the earlier requirement was to submit the results within Sunday, 04.29 PM. Now that the “Working Day” concept has been introduced. In our scenario the results will have to be submitted by the following Tuesday.

Regulation 46(2) Earlier, website disclosures were required to be made by Listed entities in their website. The lists of items were provided in Regulation 46(2). Website disclosures are to be made by Listed entities in a separate section of their website. Also, the lists of items to be disclosed have undergone a change. (*) This amendment has brought in a requirement that listed entities are to maintain their website disclosures in a separate section.
Regulation 34 (3) read with Schedule V Earlier details of Audit Committee, Nomination and Remuneration Committee and Stakeholder Relationship Committee were to be given in the Corporate Governance section of the Annual Report. Now, the details of Risk Management Committee are also to be given. Details include

·       the terms of reference,

·       composition,

·       name of chairperson,

·       members,

·       meetings and

·       attendance during the year.

This Amendment provides for a more robust mechanism for risk management.

(*) – Changes in the list of items to be disclosed on the website of the listed entity:

1. The schedule of analysts and institutional investors meet, and presentations made by the listed entity to them. The term ‘meet’ has been clarified to include group meetings or group conference calls conducted physically or through any digital means.

2. Audio or video recordings and transcripts of post earnings/quarterly calls, by whatever name called, conducted physically or through digital means, simultaneously with submission to the recognised stock exchange(s), in the following manner:

(i) the presentation and the audio/video recordings shall be promptly made available on the website and in any case, before the next trading day or within twenty-four hours from the conclusion of such calls, whichever is earlier.

(ii) the transcripts of such calls shall be made available on the website within five working days of the conclusion of such calls.

3. If a listed entity has a subsidiary incorporated outside India and

a) where an overseas subsidiary is statutorily required to prepare consolidated financial statement, the listed company can place on its website, the consolidated financial statement of such subsidiary

b) where an overseas subsidiary is not required to get its financial statement audited and it also doesn’t get its financial statement audited, the listed entity may place the unaudited financial statement on its website. If the financial statement is not in English, an English translated copy should also be placed on the website.

4. Secretarial compliance report.

5. Disclosure of the policy for determination of materiality of events or information required

6. Disclosure of contact details of key managerial personnel who are authorized for the purpose of determining materiality of an event or information and for the purpose of making disclosures to stock exchange(s).

7. Disclosures under sub-regulation (8) of regulation 30 of these regulations.

8. Statements of deviation(s) or variation(s).

9. Dividend distribution policy by listed entities based on market capitalization.

10. Annual return as provided under section 92 of the Companies Act, 2013 and the rules made there under.

Authored by Aishwarya Lakshmi VM

Introduction:

SEBI, vide Circular dated 23rd September 2020, provided the Guidelines for Investment Advisers, [hereinafter ‘Circular’] wherein at Para (iii) a detailed methodology of levying fees was prescribed. This contentious Amendment to IA Regulations and Guidelines thereof was challenged for constitutional validity and the Hon’ble High Court of Bombay had an opportunity to decide on the same. In this article, we analyse the said judgment of the High Court.

Legislative Background:

Investment Advisers are intermediaries who provide investment advise to their clients for consideration and are regulated by the SEBI (Investment Advisers) Regulations, 2013 [hereinafter IA Regulations]. Since SEBI received numerous complaints from investors regarding the exorbitant fees levied by Investment Advisers and the dubious practice of forcing clients to pay additional fees for buying weekly reports, charging extraneous fees like service fees, file handling fee etc., SEBI in its Consultation Paper, dated 15th January 2020 discussed the said matter.

Considering the public comments, the IA Regulations were amended on 30th September 2020 [hereinafter the Amending Regulations’] to include Regulation 15A which provided for the fees that may be charged by Investment Advisers. As per Regulation 15A “Investment Adviser shall be entitled to charge fees for providing investment advice from a client in the manner specified by the Board.” Subsequently the Circular was also issued.

The case of Purnartha Investment Advisers Private Limited v. SEBI:

The Petitioners, through a Writ Petition, challenged the Amending Regulations and the Circular dated 23rd September 2020 on the following grounds:

i. The Amending Regulations and the Circular are ultra vires of the SEBI Act since there is no power to given to SEBI to prescribe fees which can be charged by Investment Advisers from their clients.

ii. Moreover, prescribing fees was an essential legislative function and hence the Amending Regulations and the Circular suffer from the vice of excessive delegated legislation.

iii. Arguendo, it was also contended that if there is a power to cap the professional fees that may be charged by Investment Advisers, the same is violative of the Golden Triangle in the Fundamental Rights of the Constitution, primarily violating the freedom to practice any profession or carry on any occupation, business, or trade.

iv. Also the Petitioners contended that the fee as fixed by SEBI is arbitrary and unreasonable and that the authority (i.e., the General Manager of investment Department of SEBI) who signed the Circular had no authority to issue the same.

The Hon’ble High Court of Bombay, weighing the submissions of the Petitioner and the Respondent laid down that:

1. The Amending Regulations and the Circular were issued after following the due process of public consultation as prescribed in the law and after obtaining the approval of SEBI. Further Sections 11 and 30 of the SEBI Act, 1992, which are overarching provisions, give a general power to SEBI to make regulations in consistence with the Act. Since SEBI is duty bound to protect the interest of the investors and the integrity of the securities market, it has acted well within its scope and powers in respect of the Amending Regulation and the Circular.

2. Since the scope of judicial review of delegated legislation is minimal and there is a presumption of validity of the delegated legislation the High Court held the Regulations to be valid. Also, the Court felt that the Amending Regulations and the Circular satisfied the five-point test as laid down in the Internet and Mobile Association of India v. RBI [2020 SCC Online SC 275].

3. Moreover, the Court noted that the fee was enhanced from Rs.75,000 as specified in the Consultation Paper to Rs.1,25,000/- in the Circular. Hence, it was reasoned that SEBI had applied its mind and after taking into consideration the public comments only SEBI had issued the Circular.

4. As per the SEBI (Delegation of Statutory and Financial Powers) Order, 2019 a Deputy General Manager of SEBI is authorised to issue and sign Guidelines/ Schemes/ Circulars. Since the person who signed the Regulations was of a higher rank than what was prescribed in the Order, the Court found that the Circular was issued with due authority.

Conclusion:

The Investment Advisers shall charge fees only in accordance with the Circular and the same was also clarified by SEBI in an Informal Guidance. The Investment Advisers are not permitted to collect any fee other than what is prescribed in the Circular. As per the Circular, the fee that may be charged by an Investment Adviser under the Assets Under Advice (AUA) method shall not exceed 2.5 percent of the AUA per annum. If the method of levying fee is fixed fee mode, the annual fee that may be levied by the Investment Adviser shall not exceed INR 1,25,000. Also, the Investment Advisory Agreement should mandatorily incorporate the fee amount charged by the Investment Adviser.

Authored by Praveen Pandian

SEBI vide its circular dated 21st May 2021 has decided to enhance the overall limit for overseas investment by Alternate Investment Funds (AIFs) and Venture Capital Funds (VCFs).

Prior to Circular:

SEBI registered AIFs and VCFs were permitted to make overseas investments subject to an overall limit of USD 750 million.

Post Circular:

SEBI after consultation with RBI has hereby enhanced the overall limit to USD 1500 million for the AIFs and VCFs desirous of making overseas investments.

However, the Regulations, compliance requirements and other terms and conditions remain unchanged.

Authored by Padma Akila

Securities and Exchange Board of India (SEBI) vide order dated 24th May 2021, barred the Promoters  [Mr. Rajesh Doulatram Bhatia (“Noticee 1”) the Managing Director and Mrs. Geeta Rajesh Bhatia (“Noticee 2”) the Non-Executive Director] of Tree House Education and Accessories Ltd (“THEAL/Company”), Mumbai based pre-school chain, from accessing the securities market for one year and levied a fine of ₹28 lakh for indulging in insider trading during the company’s merger with Zee Learn Ltd (“ZLL”) in 2015.

Findings based on the investigation by SEBI:

1. On 30th November 2015, a discussion on the merger between THEAL and ZLL took place. Further, the Company vide its letter dated 11th March 2017 to the BSE has, inter alia, submitted that Noticee 1 during November 2015 had a meeting with the Chairman of ZLL and had discussed the possibility of merger of ZLL with THEAL with a share exchange ratio of 53 shares of Re. 1/ each of ZLL for every 10 shares of THEAL.

2. On 4th December 2015, before market hours, the Company made a corporate announcement relating to merger between THEAL and ZLL. The price of the scrip of the Company witnessed a rise from a closing price of INR 202.40 on 3rd December 2015 to the closing price of INR 222.60 on 4th December 2015 i.e., an increase by 9.98% in one trading day.

3. In terms of regulation 2 (1) (n) of the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”), prior to its disclosure to the stock exchanges, the aforesaid corporate announcement by the Company was an Unpublished Price Sensitive Information (“UPSI”).

4. The Noticees were alleged as insiders in terms of regulation 2 (1) (g) (i) of the PIT Regulations, as Noticee 1 being the Managing Director and the Noticee 2 being a Director of the Company were connected persons, in terms of regulation 2 (1) (d) (i) of the PIT Regulations and the Noticee 2 being the spouse of the Noticee 1, was also deemed to be a connected person as per regulation 2 (1) (d) (ii) (a) of the PIT Regulations.

5. Prior to its disclosure of the PSI to the stock exchanges, it was noticed that both the Noticees being insiders had traded in the scrip of the Company while in possession of UPSI.

Weak defences thrown by the Noticees:

The Noticees contended that the SCN has been issued with an inordinate delay of almost 4 years and is merely an afterthought. They also claimed that the copy of the Investigation Report was not furnished to them and the same was denied despite a specific request made in this regard. In a trying by failing argument, they contended that the sale of 40 lakh shares of the company was altogether a different transaction unrelated to the merger talks for which appropriate disclosure on the stock exchanges was made. Further, they claimed that the said sale was made only with the purpose to repay the loan due to the banks. They claimed that the Proposal of merger was mooted by the Chairman of ZLL only after ZLL and the Chairman acquired about 9% stake in the Company and thus there was no UPSI in existence either on 2nd December 2015 or 3rd December 2015 when shares were sold under the block deals. The Noticees also tried to imply that the allegations were only based on remote possibilities and are not backed by any concrete documentary evidence which supports or even suggest any insider trading.

SEBI’s counterarguments and holdings

The Whole Time Member (WTM) of SEBI stated that there was no provision in the SEBI Act, 1992 which provides a limitation period for taking action against the violation of the provisions of the Act or the Regulations made thereunder. As regards the Noticees’ averment that 40 lakh shares were sold to repay loans, SEBI noted that out of 4 lenders, 2 lenders had asked that the margin shortfall in the credit extended by them can either be made up by pledging additional shares, while the remaining 2 lenders had called upon the outstanding amount to be paid immediately. It was also noted that the 2 lenders which provided an option to the Noticees to make up the margin shortfall through pledge of additional securities had asked the Noticees to do the same on or before 1st December 2015, whereas the Noticees were found to have sold their shares on 3rd December 2015. Further, the replies filed by the Noticees, the total outstanding amounts payable to the 4 lenders was aggregating to INR 64 Crore, out of which the total loan amount demanded for immediate repayment by the 2 lenders referred to above was to the tune of INR 32.75 Crore only. In this regard, the WTM stated that under the circumstances assuming that the Noticees had to sell their shares to repay their outstanding loans being demanded by the lenders, at the best the Noticees could have sold only as many shares that would have fetched sales proceeds to the extent of around INR 32.75 Crore and pledged additional shares with the other two lenders who wanted the Noticees only to recoup the margin shortfall in the loan amount outstanding against the Noticees. The Noticees, however, had not put forward any justification as to why they sold 40 lakh shares to the tune realizing sales proceeds of INR 80 Crore which was far in excess of the actual amount recalled by the 2 lenders referred to above and even far in excess of the total liability of INR 64 Crore outstanding towards all the 4 lenders.

The WTM stated that indulgence in insider trading is considered a very serious charge inter alia for the reason that it creates an advantageous position to person who is an insider and is connected to a company so as to be aware of the true and correctness of information vis-a-vis others, who have no connection with the company and thereby are deprived of inside information. Further, knowing inside information creates opportunities to take advantage, as the person who is aware of such inside information cannot claim to be enjoying level playing field as far as the person not having connection with the company is concerned. Knowing more than anybody else about a company being an insider further creates opportunity to indulge in fraudulent activities.

The fact that the Noticees were not able to justify their indulgence in selling of shares of the company further leads to an irresistible conclusion that the same was done under the influence of unpublished price sensitive information, said the WTM. In conclusion, the Noticees were barred from accessing the securities market and further prohibited from dealing in securities in any manner for one year and bore a fine of ₹28 lakh.

Authored by Padma Akila

An average consumer in today’s world does not acknowledge a product just from its brand name or appearance but is also highly interested in the way the products feel and the shape of their packaging. A three-dimensional trademark is a type of non-conventional trademark that comprises the 3D shape of a product, or its package/container created to acquire distinction among its competitors. A 3D mark may include shapes of the container in which the product is packed (example: the shape of the coca-cola bottle) or the shape of the product itself (example: the shape of KitKat and Toblerone chocolate bars).

The Trade Marks Act, 1999 defines a mark and a trade mark to include the shape of goods and hence protectable under the Indian trademark law. At this juncture, it is pertinent to note that 3D trademarks in India go way back to the 90s with their trademark game when the Indian Trademark Registry granted protection to the shape of ZIPPO lighters in 1996. Apart from the general conditions to be followed while registering an ordinary (two-dimensional) mark, the shape of the 3D mark on which protection is being sought is also subject to certain conditions laid down under Section 9(3) of the Trade Marks Act which states that a mark shall not be registered if it consists of (i) shape of goods which results from nature of goods themselves, or (ii) shape of goods which is necessary to obtain a technical result, or (iii) shape which gives the substantial value of goods. The Trademarks Manual states that the purpose of Section 9(3) is to ensure that the common shape of goods, as it exists in nature, does not get monopolised. Further, Rule 29(4) of the Trade Mark Rules, 2002 states that when applying for a trademark of a shape mark, the graphical representation must contain a 5-point perspective photograph showing all features of the mark, accompanied by a detailed word description of the mark.

It is pertinent to note that brand owners can alternatively opt for the protection of the shape of their products under the Design Act, 2000 which includes features of shape, configuration, pattern or ornament or composition of lines applied to any article whether two-dimensional or three-dimensional or in both forms. It is pertinent to note that securing registration on 3D trademarks in India, needs extensive proof of usage and a higher burden of proof to claim exclusivity in relation to such 3D shapes in favour of the applicant as compared to regular trademarks. One of the basic elements or pre-requisites for registration of, a product design under the Design Act, 2000 is novelty viz., the product on which design registration is being sought needs to be original and also implies that the subject design must not have been previously published anywhere in India or in any other country in a tangible form or by use or in any other way.

Some examples of 3D trademarks include the shape of the Ferrero Rocher chocolate, the contour of a Coca-Cola bottle, the shape of the Zippo Lighter, the 3D shape of the Super Cub Scooter of Honda, the Toblerone packaging, Les Grands Chais de France wine bottle and many more.

Authored by Adit N Bhuva

BACKGROUND:

MCA vide its general circular dated 18th June 2014, had clarified that the activities undertaken by the company under its CSR policy should be relatable to Schedule VII of Companies Act 2013, and that the entries in Schedule VII should be interpreted liberally in order to capture the essence of the items in the said schedule.

On account of pandemic, MCA vide its circular dated 23rd March, 2020 had further gone ahead to clarify that spending of CSR funds for Covid-19 is an eligible CSR activity under item I (promoting health care including preventive health care) and item XII (disaster management) of Schedule VII.

In addition to the above, MCA has clarified that the following activities related to COVID to be categorised as an expenditure under CSR.

AMOUNT SPENT ON FOLLOWING ACTIVITIES TO BE CLASSIFIED UNDER CSR ACTIVITY:

Circular dated 22nd April 2021

(a) Any amount spent on setting up makeshift hospitals and temporary COVID Care facilities shall be treated as an eligible CSR activity (Companies may undertake such activities in consultation with State Government).

Circular dated 05th May 2021

(a) any amount spent for:

1. creating health infrastructure for COVID care

2. establishment of medical oxygen generation and storage plants

3. manufacturing and supply of oxygen concentrators, ventilators, cylinders, and

4. other medical equipment for countering COVID-19.

MCA further clarified that the companies including Government companies may undertake the activities or projects or programmes using CSR funds, directly by themselves or in collaboration as shared responsibility with other companies.

CLARIFICATION ON CONTRIBUTION TO PM CARES FUND:

MCA vide Circular dated 20th May 2021, has clarified that if a company has contributed any amount to ‘PM CARES Fund’ on 31st March 2020, which is over and above the minimum statutory amount for the financial year 2019-2020, then such excess amount may be set off against the amount that is to be spent by the company during the financial year 2020-2021, subject to following conditions.

i. The amount offset as such shall have factored the unspent CSR amount for the previous financial years if any

ii. The Chief Financial Officer and the statutory auditor of the company should certify that the contribution to “PM-CARES Fund” was made on 31st March 2020.

iii. Disclosure in Board report:  Details of such contribution shall be disclosed separately in the Annual Report on CSR as well as in the Board’s Report for the financial year 2020-2021.

Authored by Adit N Bhuva

BACKGROUND:

The Hon’ble Finance Minister as part of her budget speech for FY 2019-20 had indicated to take the capital markets closer to the masses for the purpose of meeting social welfare objectives related to inclusive growth and to this effect proposed to create an electronic fundraising platform – a social stock exchange for the listing of social enterprises and voluntary organisations (Not for profit organisations (NPO) and For profit enterprises (FPE)) working for the realisation of a social welfare objective.

NEED FOR SOCIAL STOCK EXCHANGE (SSE):

India’s economic imperative is to feed, clothe, educate and empower more than a billion people, in ways that conserve and grow its natural, cultural and social heritages. It cannot expect to accomplish this lofty objective on the strength of conventional commercial capital alone. The proof of that is that there are around 3 million non-profit organisations. One of the major hurdle these NPOs face is the lack of financial assistance to carry on their efforts, in absence of any formal structure to raise funds. On the other side, there are people who would want to donate/invest/fund NPOs or FPEs carrying on programs and projects having social impact. However many of them stop short due to lack of confidence of how the funds are utilised, due to absence of any formal structure.

This is where the Social Stock Exchange would give NPOs/FPEs with social objective, access to donors and confidence to the Donors on the impact of their donations/contributions.

CONSTITUTION OF A WORKING GROUP ON SSE:

A working Group on SSE was constituted on 19th September 2019 to recommend a broad framework on:

1. Instruments for raising of funds

2. Eligibility norms for participation in fund raising through SSE

3. Disclosures

4. Listing & trading

5. Oversight etc.

The report by the working group was provided on 1st June 2020.

CONSTITUION OF TECHNICAL GROUP ON SSE AND THEIR REPORT:

Based on the report of the working group, a technical group was constituted to build on the broad framework recommended by the working group and provide specific framework on the following matters:

1. Onboarding of NPOs and FPEs on the SSE

2. Prescribing disclosure requirements – financial, governance, operational performance, and social impact.

3. Scope of work, eligibility criteria & regulation of social auditors.

The Technical Group has on 6th May 2021 provided its detailed recommendations on the aforesaid matters for public comments.

The due date provided for receiving public comments is 20th June 2021.

OVERVIEW OF THE RECOMMENDATIONS OF THE TECHNICAL GROUP:

We provide a brief overview of the recommendations of the Technical Group:

1. LISTING FRAMEWORK:

A. Eligibility criteria for NPOs and FPEs (“collectively referred as “Entities”) provided

i. The Entities should be able to demonstrate that social intent and impact are its primary goals.

ii. Focus on eligible social objectives for the undeserved or less privileged populations or regions.

iii. 3 filters to establish the primacy of social impact objective of social enterprise:

a. Activities based filters – based on schedule VII of Companies Act, 2013, Sustainable Development Goals of UN (SDGs) and areas identified by Niti Aayog.

b. Based on recipient of activities – underserved or less privileged population segments or regions recorded lower performance in the development priorities of national/state governments.

c. NPO/FPE to contribute certain percentage of its activities toward eligible activities to the target population – by way of revenue, expenditure, or customer base.

B. Entities not to be considered as NPOs/FPEs:

Corporate foundations, political or religious organizations/ activities, professional or trade associations, infrastructure and housing companies (except affordable housing) will not be permitted on SSE.

C. NPO Registration with SSE:

1. Registration of NPO with SSE will provide confidence to the investor community.

2. Mandatory qualifying criteria for registration prescribed in detail, such as the NPO to be a legally registered NPO i.e., Public charitable Trusts with registered deed, societies under societies registration act, not for profit companies under companies act, various other indicators such as validity of registration certificate, details of ownership and control, valid registration under Income Tax, minimum annual spending in past financial year, minimum funds raised in past financial year.

D. Nature of listable securities have been recommended:

i. For NPOs – for “not for profit companies” registered under section 8 of companies act, equity can be listed. For other NPOs, Zero Coupon Zero Principal bonds, Social Venture Funds raised by AIF (Cat I) on behalf of NPOs, Development Impact Bonds, NPOs can receive grants through existing Mutual funds through AMC. Example of existing fund is HDFC Cancer Fund.

ii. For FPEs – equity and debt instruments as already existing in the SEBI regulations, Social Impact Funds.

iii. The Social Venture Funds are proposed to be renamed as Social Impact Funds.

iv. Illustrations have been provided as to the working of the aforestated instruments on SSE.

v. Outline of the Offer documents for listing of the aforestated instruments is prescribed in the report.

E. Listing guidelines for NPOs/FPEs:

NPOs:

i. NPOs to provide audited financial statements of previous 3 years and social impact statements.

ii. As part of offer documents, NPOs to provide details under the head called ‘differentiators” such as vision, target segment, strategy, governance, management, operations, finance, compliance, credibility, social impact, risks etc.

FPEs

i. Existing SEBI regulations on eligibility criteria for listing of securities such as equity, debt issued by FPEs.

ii. Additional disclosures to be provided in the offer document under the heads called “differentiators” as specified above.

2. DISCLOSURES AND REPORTING:

A. Disclosures:

1. Reporting on general, governance and financial aspects for NPOs and FPEs prescribed.

2. For NPOs registered on SSE, whether they have chosen to list securities or not, a set of minimum standards for disclosures on general, governance and financial aspects is recommended, which are listed below:

General: Vision, mission, activities, and scale of operations.

Governance: Legal form, board and management, organisational-level risks and mitigation, related party transactions and other ethical concerns, remuneration policies, stakeholder redressal, compliance, and certifications.

Financial: Balance sheet, income statement and cash statement, program-wise fund utilization for the year, auditor’s report and auditor details.

iii. The FPE listing equity/debt shall, in addition to social impact reporting requirement, comply with the disclosure requirements as per the applicable segment such as main board, SME and IGP.

B. Social Impact Report:

i. Reporting on social impact – both the FPE and the NPO, once they have their securities listed (or once the NPO has registered with an exchange but chooses not to list) – to produce an Annual Impact Report (AIR).

ii. The Annual Impact Report is to capture the qualitative and quantitative aspects of the social impact generated by the social enterprise.

iii. If SVF is listed, then the relevant AIF to prepare the report.

iv. Annual Impact Reporting will broadly be done under the following heads:

a. Strategic Intent and Planning.

b. Approach.

c. Impact Score Card.

v. Detailed guidance on AIR provided.

3. ENABLING ECOSYSTEM:

A. Capacity building fund (CBF):

i. A capacity building fund, which will be an administrative fund, will be set up to be used to do capacity building, awareness programs for the benefit of NPOs and other stakeholders such as funders/investors and social auditors.

ii. Developmental agencies such as SIDBI, entities by way of CSR may contribute to this fund.

B. Social auditors:

i. Social audit critical to provide confidence to the funders/investors.

ii. Social auditors to carry audit of social impact.

iii. Both financial and non-financial auditor can be social auditors

iv. Eligibility criteria for social audit recommended.

v. Responsibility of Self-Regulated Organisation (SRO) for social auditors recommended to be assigned to ICAI and mechanism for the constituting the SRO prescribed.

vi. Format of assurance of social impact reporting to be provided by social auditors prescribed.

C. Information Repositories (“IR”):

i. Currently Information Repositories function as aggregator of information on NGOs and provide a searchable database in a comparable form.

ii. No regulatory intervention required for IR as of now.

iii. Appropriate regulations will be prescribed as their role shapes up going forward.

Authored by Adit Bhuva & Sri Vidhya Kumar

Ministry of Corporate Affairs has introduced numerous changes to Corporate Social Responsibility (CSR) and the said changes were notified on 22nd January 2021 (“Amendments”). In this regard there are certain actions which may be required to be undertaken by the Companies to whom CSR is applicable.

In this article, we have highlighted specific actions which the companies may have to take.

S.No Highlights Board / Committee ActionPoints
1 Applicability of constitution of CSR Committee
CSR committee has been made optional for companies which have a liability of Rs. 50 lacs or less towards CSR.

For such Companies, the functions of CSR committee can be discharged by the Board.

If the liability towards CSR is less than Rs. 50 Lacs, then CSR committee may be dissolved at the option the Board.
2 Mandates in the CSR Policy
CSR Policy should contain:

  • The approach and direction of the Company towards CSR (areas of schedule VII of Companies Act 2013 (Act) which the Company will be concentrating on);
  • The guiding principles for selection, implementation, and monitoring of CSR activities.
  • Requirement of formulating an Annual action plan.
CSR Policy to be amended to include the mandates (recommendation of CSR Committee required, if applicable)
3 Approving of Annual Action Plan
Company has to frame an Annual Action Plan consisting of the following details:

  • (a) the list of CSR projects or programs that are approved to be undertaken in areas or subjects specified in Schedule VII of the Act;
  • (b) the manner of execution of such projects or programs
  • (c) the modalities of utilisation of funds and implementation schedules for the projects or programs;
  • (d) monitoring and reporting mechanism for the projects or programs; and
  • (e) details of need and impact assessment, if any, for the projects undertaken by the company:

Provided that Board may alter such plan at any time during the financial year, as per the recommendation of its CSR Committee, based on the reasonable justification to that effect.

Based on the recommendation of the CSR Committee (if applicable), the Annual Action Plan to be approved by the Board.
4 Monitoring of implementation of CSR project
Board is required to monitor implementation of a project with reference to approved timelines and can make modifications within permissible time period. Implementation schedule of a project to be approved by the Board. Update on implementation to be placed before the board
5 Contribution of CSR through implementing agency – agency to be registered with MCA for CSR
If CSR activity is undertaken through following entities, then any amount provided to such entities will be considered as spend towards CSR, only if, the entity is registered with MCA for carrying out CSR activities:

1. A company established under section 8 of Companies Act, 2013, a registered public trust or a registered society(*) formed

  • by the Company either singly or alongwith any other company.
  • Established by the Central Government or state government

2. If not formed by the Company or Central government of state government, then the aforesaid entities to have 3 years of track record in undertaking similar programs or projects.

3. Any entity established under as Act of parliament or a state legislature

*section 8 of Companies Act, 2013, a registered public trust or a registered society will have to be registered under section 12A & 80G of Income Tax Act, 1961

Proof of registration with MCA to be obtained before spending of CSR amount
6 Treatment of unspent CSR amount as on 31st
March
(a) Any amount required to be spent towards CSR and remaining unspent (and not relating to an ongoing project) as on 31st March is required to be transferred to a fund specified in Schedule VII of the Act within 6 months from 31st March of that year.

(b) If the unspent amount pertains to an ongoing project, then such amount to be transferred to a special account called “Unspent CSR Account”
within 30 days of 31st March.

  • This amount is required to be spent on the “ongoing project” within 3 financial years from the date of transfer.
  • If the amount is unspent after three financial years, then such amount to be
    transferred to the fund specified in Schedule VII of the Act within 30 days
    from the end of the 3 rd financial year.
To ascertain if any amount is unspent as on 31st March and transfer such unspent amount to the accounts specified.
7 Benefit of set off w.r.t. excess amount spent towards CSR
Excess amount spent towards CSR in a particular financial year, is allowed to be offset upto a period of three subsequent years, subject to approval of the Board. Board to take note of the unspent amount to offset in subsequent years.
8 Requirement of conducting impact assessment
Requirement of undertaking impact assessment through an independent agency, of their CSR projects.

Applicability:

  • Companies having average CSR obligation of Rs. 10 Crore or more in the three immediately preceding financial years The impact assessment has to be done only for the CSR Projects which has completed one year and having an outlay of Rs 1 Crores or more.
The impact assessment
reports are to be placed
before the Board and
ensure that it forms part of director’s report.
9 Certification to the Board of directors
Certification from Finance Dept: – Board, in order to satisfy itself that the funds are utilised for the purpose for which it was disbursed for, should obtain certificate from the Chief Financial Officer of the company or person responsible for financial management indicating that the funds are utilised for the purpose for which it was disbursed for. Board to take note of the certificate
10 Disclosures in Boards report
Additional detailed disclosures are required to be made in the Board’s report for the financial year 31st March 2022 onwards. Applicable for the Board’s report for the FY 31st March 2022 onwards
11 Disclosures in website
The following information to be disclosed on the website:

  • Composition of the CSR Committee, if any,
  • CSR Policy &
  • CSR Projects

Authored by Vishaka S, Nithin Satheesh & Saisunder N.V

The increase in usage of social media platforms has also led to a corresponding increase in users uploading and sharing of photographs and pictures, either to express one’s feelings and views on a subject matter or to simply share it with their friends and relatives on such platforms. Now, what happens when you notice that some of the images that you uploaded to your social media account is used by some other person without your knowledge, or consider a scenario where you are putting up a corporate presentation for your company, to be used in relation to a client project and you use some images that you obtained from the internet, which is a photograph of another person or of something that has been posted in the internet by another person? The immediate question that comes to one’s mind is – Is it legally allowed or permitted to use such photographs or pictures? More often than not we come across incidents where such pictures or photographs are used by a third party in an unauthorized manner. With the surge in the number of people posting their photos on social media platforms which is easily accessible by any other person, it is not surprising to see the increase in cases pertaining to infringement of copyright and breach of privacy of individuals. This article explains the law and the judicial precedents prevailing in India on the aspects of copyright and its protection in relation to photographs.

To start with, it is to be noted that photographs are classified as artistic works within the meaning of Section 2(c) of Indian Copyright Act, 1957 (“Act”) and the photographer is considered as the author and owner of the photograph. However, where such photograph is clicked for valuable consideration on behalf of any person, such other person shall be the first owner of the copyright in the photograph, provided there is no agreement to the contrary.

In a very recent order passed by the Bombay High Court in the case of in Sakshi Malik v. Venkateshwara Creations [Commercial IP Suit no. 3510 of 2021 with IA no. 3514 of 2021], the Plaintiff who is a model and actor filed a suit for copyright infringement and defamation claiming damages against the defendant for the illicit and unauthorised usage of her image in the Defendant’s Telugu movie titled “V”. She claimed that the image which was used by the Defendants was one which was uploaded by her in her private Instagram account and such use without her consent amounted to infringement of copyright. The Court while passing an order in favour of the Plaintiff reasoned that simply using another’s image, and most especially a private image, without consent is prima facie impermissible, unlawful and entirely illegal. Following the interim direction of the Bombay High Court, the movie was temporarily removed from the OTT platform and then reuploaded after deleting the scene containing the private image of Plaintiff.

Similarly in the year 2013, in Sonu Nigam v. Amrik Singh (alias Mika Singh) [MANU/MH/0517/2014], the plaintiff filed for an injunction against Mika Singh and the recording label OCP Music wherein the defendants had put up hoardings and billboards containing the plaintiff’s photographs as advertisements for the Mirchi Awards 2013 without obtaining the plaintiff’s consent or permission for such advertisement. The Bombay High Court restrained the defendants from displaying the plaintiff’s photographs and ordered them to pay monetary damages of Rs.10 Lakhs towards specified charities, consented by the parties.

In Koninlijke Philips N.V. & Anr. vs Amazestore & Ors. [MANU/DE/1390/2019], the plaintiff filed a suit against the defendants for intellectual property infringements at various levels including infringement of copyright in a photograph of the model advertising the plaintiff’s product wherein the defendant merely replaced the plaintiff’s product with their product. The Delhi High Court held that the unauthorised and brazen reproduction of the plaintiff’s artistic work amounted to infringement of copyright under section 51 of the Act and consequently granted permanent injunction against the defendant and directed the defendants to pay compensatory and exemplary damages to plaintiff.

It is important to note that copyright protection is afforded to any photograph irrespective of whether such work possesses artistic quality. Hence, it can be safely concluded that any photograph, irrespective of its quality and content, is protected under copyright laws in India and to use such a photograph without consent of the owner would tantamount to a potential copyright infringement. In Fairmount Hotels Pvt. Ltd. v. Bhupender Singh [CS (OS) 2754/2015 with IA no. 17922/2015], the plaintiff sought for a permanent injunction and damages for copyright infringement wherein the defendant who was managing the hotel of the plaintiff between 2010 and 2013, opened his own hotel in Manali by the name “Mountain Inn” and posted photographs of the plaintiff’s hotel on the defendant’s Facebook page thereby misrepresenting it as that of the defendant’s hotel. The Delhi High court ordered a permanent injunction against the defendant from using the photographs of the hotel of the plaintiff and directed the defendant to pay Rs. 50,000 to the plaintiff as damages.

However, the Indian courts while analyzing the cases of copyright infringement have always been cautious about the application of principle of de minimis and exceptions of fair use under the Act. In The Chancellor, Masters & Scholars of University of Oxford &Ors. v. Rameshwari Photocopy Service &Ors. [MANU/DE/2497/2016], the Delhi High Court while deciding a case on infringement of copyright, observed that where students, instead of taking notes from the books in the library, click photographs of each page of the book required to be studied by them and thereafter take print of the said photographs or to read directly from the cell phone, it would be qualified as fair use under the Act and hence not a case of copyright infringement.

In Durga Dass Publications (P) Ltd v. Hindustan Times Ltd [Suit No. 81/08, 31 October, 2011], the plaintiff filed for permanent injunction and damages against defendant for publication and circulation of a magazine titled “Gourmet Fare” containing few photographs of restaurants which was taken from the plaintiff’s book  “The Connoisseur Handbook on Eating Out”. The Delhi High Court dismissed the suit of plaintiff as there was no evidence proving that plaintiff has copyright on those photographs while also making a brief observation that the defendant had allegedly copied 7 photographs out of 100 contained in plaintiff’s book, which is a small fraction and cannot be termed as copyright infringement.

It is pertinent to note that the aforesaid judicial principles under the copyright law also applies to images that one may come across on the internet, while conducting a simple web search or image search on a particular subject matter. It is important to understand that the usage of such photographs or images may be subject to the terms and conditions of the website or the link in which such images have been uploaded by the owner of the image. It is to be noted that, usage of such images may be subject to payment of fee to entities or persons operating such websites in which the photographs have been legally uploaded for further licensing and usage. Hence, care needs to be exercised prior to using such images. In this regard, it is also to be noted that there are certain websites that have image stocks that can be legitimately used without payment of any royalty or license fees.

Nevertheless, in both the cases – whether images are downloaded for a fee or free, the user is required to execute licensing agreement with the website, and violating the terms of the license or other conditions of use as mandated by such websites shall raise legal consequences.

Although the Act provides for unambiguous and comprehensive provisions for protection of copyrights in photographs, with the advent of technology and increased use of social and digital media, it has become all the more important to understand the position of Copyright law and the related judicial precedents in India surrounding photographs and its legitimate use. To summarise, the key takeaways from the various judicial precedents regarding the legal position of copyright in photographs in India are as follows:

i. The person who clicks or shoots the photograph is considered under law to be the first owner of the copyright in such pictures or photographs, unless the same is being photographed by that person at the behest of another person, in which case the person at whose behest the photograph is being clicked or taken is considered to be the first owner of the copyright thereunder.

ii. Accordingly, it becomes very important for the photographers or the person at whose behest the photographs are being clicked, who wish to own the rights over thephotographs to clearly document the understanding and enter into agreement with the other to clearly define and retain their rights.

iii. Today, people have an option to download and use copyrighted images/photographs legally for any commercial or non-commercial purposes by obtaining license to use the same through intermediary websites such as Shutterstock, Fotollia, Unsplash, Photo Pin etc., either for a stipulated fee or free of cost, as the case may be. However, such licensing terms always appreciate and encourage users to give due credit to the photographer and the website at the time of usage.

iv. People uploading photographs on public platforms need to have a constant vigil on the potential misuse of their pictures by any other third person and apart from the issue of copyrights infringement for unauthorized use, suitable actions for misuse or personality and privacy rights violation can also be brought before the Indian courts in such matters.

v. As much as the copyright subsists in a photograph, the alleged action for infringement is viewed by the courts wholistically on a case-to-case basis, bearing in mind the principle of de minimis and the exceptions of fair use as provided under the Act.

Upon receipt of representations from listed entities, professionalbodies etc., SEBI has hereby extended the timelines for various filings and has provided relaxation from certain compliance obligations underthe SEBI (LODR) Regulations, 2015 due to ongoing second wave of the COVID-19 pandemic vide its circular dated 29th April, 2021. The relaxations are as follows:

Sl No. Compliance Compliance Reg. Requirement as per the Regulation Due Date Extended Due Date
For all entities that have listed their specified securities in Stock Exchanges
1 Annual Secretarial Compliance report 24A, LODR 60 days from end of financial year May 30,2021 June 30, 2021
2 Quarterly financial results 33(3), LODR 45 days from the end of each quarter May 15, 2021 June 30, 2021
3 Annual audited financial results 33(3), LODR 60 days from the end of financial year May 30,2021 June 30, 2021
4 Statement of deviation or variation in use of funds 32(1), LODR Along with the financial results (within 45 days of end of each quarter / 60 days from end of the financial year) May 15, 2021 (Quarterly)
May 30,2021 (Annual)
June 30, 2021
For Entities that have listed its Non- Convertible Debt Securities Or Non-Convertible Redeemable Preference Shares or both, SEBI has provided relaxations thorough another Circular dated 29th April 2021.
5 Half YearlyFinancial Results 52(1), LODR 45 days from the end of each half year May 15, 2021 June 30, 2021
6 Annual Audited Financial Results 52(2), LODR 60 days from the end of the financial year May 30, 2021 June 30, 2021
7 Statement of deviation or variation in use of funds 52(7), LODR Along with the financial results (within 45 days of end of each half year / 60 days from end of the financial year) May 15, 2021 (Half yearly)
May 30,2021 (Annual)
June 30, 2021
For entities that have listed their bonds under the SEBI (Issue and Listing of Municipal Bonds) Regulations, 2015
8 Annual audited financial results Pursuant to SEBI Circular dated 13th November 2019 60 days from the end of financial year May 30,2021 June 30, 2021
For entities which have listed Commercial Papers
9 Half Yearly financial results Pursuant to SEBI Circular dated 22nd 45 days from the end of each half year 45 days from the end of each half year June 30, 2021
10 10 Annual audited financial results October 2019 60 days from the end of financial year May 30,2021 June 30, 2021

 

Permission to use DSC for authentication / certification of filings / submissions: Further SEBI has permitted listed entities to use digital signature certificates forauthentication/ certification of filings/submissions made to the stock exchanges under the SEBI (Listing ObligationsandDisclosure Requirements) Regulations, 2015 for all filings until December 31, 2021.

BACKGROUND:

In 2015, regulatory framework for Institutional Trading Platform (ITP) was put in place vide amendment to SEBI (Issue of Capital and Disclosure Requirement) Regulations, 2009, (“erstwhile ICDR Regulations, 2009”), with a view to facilitate new ageentities which are intensive in the use of technology, information technology, intellectual property, data analytics, bio-technology or nano-technology to provide products, services or business platforms with substantial value addition,with early-stage investors, an opportunity for listing with a simple framework compared to the main-board.

Listing on this platform can be pursuant to an IPO or without an IPO. However, the ITP framework failed to evince interest.

In 2019, SEBI attempted to revive the platform by introducing certain amendments to the ITP framework and renamed it as the Innovators Growth Platform (IGP). However, market interest in the platform continued to be tepid.

Hoping to encourage the technology based entities to list their securities on IGP, SEBI has on 5th May 2021,relaxed certaineligibility &listing criteria for listing on Innovators Growth Platform.

CHANGES/RELAXATIONS:

(A) Companies with Special Voting Rights Shares (“SR”) to its promoters/ founders, allowed to do an IPO under IGP framework:

Background/pre-amendment provision Change/relaxation
Pre-amendment IGP framework did not allow issuer companies to do an IPO of only ordinary shares for listing on the IGP, if it issued special voting rights shares to its promoters/ founders. Now such companies which has issued special voting rights shares can do an IPO of ordinary shares.There can be two classes of shares of which only one is listed.

 

(B) Reduction in holding period of percentage of pre-issue capital by certain category of investors:

Background/pre-amendment provision Change/relaxation
Certain category of investors (“Pre-issue Investors”)[1] were required to hold atleast 25% of the pre-issue capital for a period of 2 years prior to date of filing of draft information document or draft offer document with the Board.The Pre-issue Investors consists of both Institutional investors and non-institutional investors. This pre-issue holding period has been reduced to 1 year.

 

(C) Family Trusts included in the category of investors required to hold the pre-issue capital:

Background/pre-amendment provision Change/relaxation
As specified in para (B) above, certain category of investors hadto hold altleast 25% of pre-issue capital at the date of filing of draft information document or draft offer document with SEBI.These categories of investors have been prescribed under the regulations. Family Trusts was not included in this category. SEBI has included Family Trust with a networth of Rs. 25 Crores, as eligible category of investors for the purpose of holding altleast 25% of pre-issue capital.With these entities having angel investments, and with many angels having invested through their family trusts, this would bring many such entitieswithin the eligibility criteria to be listed on IGP.

 

(D) Removal of sub-limit on pre-issue capital to be held by Innovators Growth Platform Investors (‘IGP Investors”).

Background/pre-amendment provision Change/relaxation
Out of the 25% to be held by Pre-issue Investors, the holding by the IGP investors could not have exceeded 10% of the pre-issue capital. One of the category of Pre-Issue Investors are Innovators Growth Platform Investors (‘IGP Investors”)[2] .

These IGP Investors are required to get the accreditation as IGP Investors from stock exchange/depositories as per the prescribed procedure.

This sub-limit of 10% has been removed and hence IGP Investors can hold the entire 25% of the pre-issue capital.

 

(E) Discretionary allocation allowed:

Background/pre-amendment provision Change/relaxation
The allotment to institutional investors as well as non-institutional investors was to be only on a proportionate basis. Now 60% of the issue size on a discretionary basis, can be allocated to the category of Pre-issue Investors or Eligible Investors. Conditions:

1. This will be in accordance with the requirements with respect to anchor investors for public issue made on the SME exchange as specified in Part A of Schedule XIII to SEBI ICDR regulations.

2. The price of the specified securities offered to Eligible Investors shall not be lower than the price offered to other applicants.

3. The Eligible Investors shall make an application of a value of at least Rs. 50 lakhs.

 

(F) Lock-in of Pre-issue capital – exemptions

Background/pre-amendment provision Change/relaxation
The entire pre-issue capital of the shareholders prior to the issue, is locked-in for a period of six months from the date of allotment in case of listing pursuant to a public issue or date of listing in case of listing without a public issue. However there are certain categories of shareholders who are exempted from this lock-in requirement.

One of the categories which is exempted is the category I Alternated Investment Fund.

Now category II AIF has also been exempted from the lock-in requirement.

 

(G) Relaxation of delisting norms for listing done through IPO:

The existing delisting norms pertaining to approval of the public shareholders, determination of offer price, minimum number of shares to be acquired by the acquirer/promoter are too stringent and onerous and hence the same have been relaxed in the following manner:

Particulars Provision prior to amendment Change/relaxation
Approval The special resolution of shareholderscould havebe acted upon only if the ratio of votes of public shareholders favouring the delisting to against was 2:1. Now, the special resolutionfor delisting can be acted upon if the votes cast by the majority of public shareholders are in favor of such exit proposal. From a 66.67% votes in favour, it has now been changed to a simple majority in favour.
Offer price The offer price shall be determined through book building after fixation of floor price that is arrived at as per the provisiosn of Regulation 8 of SEBI (SAST) Regulations, 2011 Requirement of book building is removed.Acquirer/Promoter can determine the delisting premium, and justify the same and add the same to the floor price determined in terms of regulation 8 of SEBI (SAST) Regulations, 2011
Minimum number of shares to be acquired by the acquirer/promoter Promoter shareholding was to reach 90% of total paid-up share capital during the delisting. The delisting can be done if after the offer for delisting, the promoter/acquirer shareholding is 75% of total paid-up share capital and atleast 50% of shares of public shareholders have been accepted.

 

(H) Migration from IGP to main board

Background/pre-amendment provision Change/relaxation
For migration from the IGP platform to the main-board, a company that does not satisfy the conditions of profitability, net worth, net assets, etc., needs to have 75% of its capital held by Qualified Institutional Buyers (QIBs) on the date of migration. However, they have been relaxed now, and there is a reduction in the requirement from 75% to 50%.

 

CONCLUSION:

Given the importance of start-ups and technology based entities in nation building and the contribution of the early stage investors in the growth of these entities, the Institutional Trading Platform (now Innovators Growth Platform) was introduced to provide easy listing by start-ups and liquidity for its Investors.

The aforesaid relaxations and changes are to further encourage investments in these tech companies, by easing its entry into listed space, bringing more number of start-ups within the eligibility criteria for listing on IGP and easing the delisting norms for the benefit of the investors and the start-ups.

It is imperative to note that there is no bar on the age of these companies to get listed on IGP, as long as they are into technology and innovation.


[1]
The following categories will be considered as Pre-issue Investors (s.no. I & II below are institutional investors and s.no. III below falls under the category of non-institutional investors):

  • QIBs;
  • The following regulated entities:
    • FPI;
    • An entity meeting all the following criteria:
      • It is a pooled investment fund such as mutual funds, AIF etc.. with minimum AUM of USD 150 million;
      • It is registered with a financial sector regulator in the jurisdiction of which it is a resident;
      • It is resident of a country whose securities market regulator is a signatory to the International Organization of Securities Commission’s Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to Bilateral Memorandum of Understanding with the Board;
      • It is not resident in a country identified in the public statement of Financial Action Task Force as:
        • a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or
        • a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies.
  • Innovators Growth Platform Investors (“IGP Investors”) for the purpose of IGP;

[2] The IGP Investors consists of:

(i) any individual with a total gross income of Rs. 50 lakhs annually and who has a minimum liquid net worth of Rs. 5 crores; or

(ii) any body corporate with net worth of Rs. 25 crores.

(iii) any family trust with net worth of Rs. 25 crores.

Authored by Padma Akila

The Department for Promotion of Industry and Internal Trade (DPIIT) of the Ministry of Commerce, had, vide a notification dated 30th March 2021, published the Copyright Rules Amendment 2021. The amendments have been introduced with the objective of bringing the existing rules in consistency with the Copyright Act, 1957. Some of the key highlights of the said amendment to the Copyright Rules 2013 are as under:

1. A new provision with respect to publication of Copyrights Journal has been inserted under Rule 7 (5), thereby eliminating the requirement of publication of copyright works in the Gazette. The Copyrights Journal would now be available on the official portal of the Copyright Office www.copyright.gov.in. This change has been made to keep up with the technological advancement by adopting electronic means as primary mode of communication in the Copyright Office. The publication of copyright works in the journal as proposed by the new rules is similar to the procedure of journal publications that is prevalent in other IPR legislations such as Trademarks, Patents, Geographical Indications, etc.,.

2. The compliance requirement under Rule 70 (5) for registration of software works have been largely reduced. Now the applicant can file the first 10 and last 10 pages of source code, or the entire source code if less than 20 pages, with no blocked out or redacted portions. This is to ensure that the confidentiality and the proprietary information present in the source code of a computer programme is not given away merely for the purposes of obtaining copyright registration.

3. Rule 65A has newly been inserted wherein the Copyright Societies would be required to draw up and make public an Annual Transparency Report for each Financial year within 6 months following the end of the financial year. This is likely to ensure the regulation of management and functioning of copyright societies which could lead to a more transparent and streamlined functioning of such societies.

4. The time limit for the Registrar of Copyrights to respond to an application made before it for registration as a copyright society is extended to 180 days from 60 days.

5. New provision as sub-rule (3) to Rule 55 and sub-rules (11) (12) and (13) to Rule 58 have been inserted to manage the undistributed royalty amounts and use of electronic and traceable payment methods while collection and distribution of royalties to authors. This modification will help in resolving information imbalances that have disrupted the functioning of copyright societies generally where authors have not received their due share of royalties. This amendment in particular is of significant interest, more so in the light of advent of blockchain technology that can be leveraged upon potentially by copyright societies that can aid in electronic and traceable payment methods of royalties as stipulated under this amended rule.

6. Most notably, the “Copyright Board” has been replaced with “Appellate Board” and the Intellectual Property Appellate Board (IPAB) constituted under the Trademarks Act, 1999 has been designated as the Appellate Board to hear and decide upon matters under the Copyright Act.

In this regard, it is, however, pertinent to note that this specific amendment whereunder the IPAB has been designated as the Appellate Board under the amended rules has since become redundant as the Central Government has, through the Ministry of Law and Justice, on 5th April 2021, promulgated the Tribunals Reforms (Rationalisation and Conditions of Service) Ordinance, 2021, pursuant to which the IPAB was sought to be dissolved. Accordingly, vide a Notification issued under the said Ordinance on the 22nd April 2021, the IPAB stood dissolved, thereby all the powers and duties of the IPAB stand vested and transferred to the relevant jurisdictional High Courts or Commercial Courts constituted under the Commercial Courts Act, 2015.

Authored by Ammu Brigit

One of the licences that is issued under the Drugs and Cosmetics Act 1940 (DCA) for manufacturing of drugs is given to a licence applicant who does not have a manufacturing facility and intends to get the drug manufactured through a person with such facility and a manufacturing licence. Under the DCA such licences are referred to as loan licences, and commonly known as contract manufacturing.

Prior to March 2021, the responsibility of maintaining the quality of drugs lied solely with the contract manufacturer and only the name and address of the contract manufacturer of the drug was required to be printed on the label or container of the drug.

In M/s Glaxo Smithkline Pharmaceuticals Limited vs. State of Bihar & Anr 2011, the writ petitioner, Glaxo Smithkline Pharmaceuticals (GSK) through a third-party manufacturing agreement engaged Emcure Pharmaceuticals Ltd (Emcure) to manufacture certain drugs. The Inspector of Drugs found certain drugs in the premises of the agents with names of GSK also printed along with the name of the manufacturer, Emcure. According to Rule 96 and 97 of the Drugs and Cosmetics Rules 1945 (“DCR”), the name of the wholesaler is not required to be labelled on the drugs. A complaint was filed, and the Chief Judicial Magistrate had passed an order against GSK as GSK’s action was violative of DCA. Pursuant to which, the petitioner filed a writ petition before Hon’ble Patna High Court to quash the order of the Judicial Magistrate. GSK clarified that names were printed as per the third-party agreement it had with Emcure and took the aegis under Section 19(3) of DCA which states that a person not being a manufacturer of the drugs shall not be liable for the quality of drugs if he acquired such drugs from a duly licensed manufacturer and also stated that such labelling was according to agreement between Emcure and GSK. The Court held that it cannot entertain the plea under Section 19(3) of DCA while hearing the writ petition against the order of cognizance and pointed out that the intention of the GSK by printing its name on the label bolder than the name of the original manufacturer is to mislead customers into believing that the product is of GSK’s. Further, the court commented that the manufacturing of drugs through third-party manufacturing agreements is a way out from being liable of the regulatory provisions under DCA & DCR including but not limited to the onus of quality of products. The court further observed that it is evident that, GSK was getting benefitted out of printing its name on the label of the drug while not having any legal obligations or responsibilities as a wholesaler of the drug under the law.

The draft pharmaceutical policy 2017 by Department of Pharmaceuticals signalled the quality concerns in drug manufacturing. The policy stated that loan licensing and contract licensing undermines drug manufacturing and pricing of drugs. The draft policy document also pointed out that the manufacturing of the same drug product under different brand names by one manufacturer for distribution by different marketers needs to be discontinued and the principle of one brand name, one manufacturer, one salt and one price needs to be introduced. However, this draft policy document has not taken its final shape yet and the DCA has also not been amended to reflect the suggested changes.

In the year 2019, the Ministry of Health and Family Welfare (MoHFW) in consultation with the Drugs Technical Advisory Board, released a draft amendment rules of DCR which suggested that quality of the drug is the responsibility of the marketer also. Later, with the intent to make the marketer of the drugs also accountable for the quality of drugs, the MoHFW notified Drugs and Cosmetics (Amendment) Rules, 2020 (‘Amendment’) amending the Drugs and Cosmetics Rules 1945 (DCR), which have come into effect from 1st March 2020. The highlights of the Amendment are as below:

a. Definition of Marketer: Introducing the term ‘marketer’ to DCR, the amendment defines the marketer as any person who as an agent or in any other capacity has adopted a drug manufactured by another manufacturer through an agreement for marketing such drug by labelling or affixing his name on the label for its sale and distribution.

b. Agreement for Marketing: Inserting Rule 84C in DCR, the Amendment makes it mandatory for any marketer to enter into an agreement with the manufacturer from whom he adopts for distribution or sale of such drug by labelling or affixing his name on the label of the drug.

c. Responsibility of the Marketer: According to the Amendment, any marketer who sells or distributes a drug shall be responsible for the quality and other regulatory compliances with respect to such drug along with the manufacturer under DCA.

d. Labelling of Drugs by Marketer: The name and address of the marketer of the drug shall be printed in a conspicuous manner on the label of the container of any drug which is marketed by a marketer. If the drug is contained in an ampoule or a small container, mentioning the name of the marketer would be sufficient.

Effective from 1st March 2020, the Amendment holds the marketer and the manufacturer equally responsible for the quality and other regulatory compliance in relation to the drug. The marketers may have to now assign a team to independently validate the quality of the drugs before taking the delivery of the drugs from the manufacturers, to be compliant with the DCA. However, a marketer has a safe harbour under Section 19(3) of DCA which makes a  person not being a manufacturer of a drug not liable for the quality of the drugs if he proves that: (i) he acquired the drug from a duly licensed manufacturer, distributor or a dealer; (ii) he did not know and could not ascertain with reasonable diligence that the drug was not of standard quality prescribed by DCA; (iii) that the drug while in his possession was properly stored and remained in the same as he acquired it. Thus, a marketer can still demonstrate that he is not liable for the regulatory compliance with respect to quality of drugs under Section 19(3) of DCA.

Authored by Adit N Bhuva & Praveen Pandian

1. Board Meeting- Minimum gap between two Board meetings:

Ministry of Corporate Affairs (MCA) had vide its General Circulars dated 03rd May 2021 extended the gap for conducting Board Meetings as specified under section 173 of Companies Act, 2013 by a period of sixty days (60 days) from the initial period of one hundred and twenty days (120 days) for the first two quarters of the financial year 2021-22.  Accordingly, the gap between two consecutive meetings of the Board shall be extended to one hundred and eighty days (180 days) during the quarters April to June 2021 and July to September 2021, instead of 120 days.

2. Relaxation on levy of additional fees in filing of various Forms:

Ministry of Corporate Affairs (MCA) had vide its General Circulars dated 03rd May 2021 provided relaxation of time up to 31st July 2021, for filing various forms (other than CHG-1, CHG-4 & CHG-9 Forms) under Companies Act 2013 and Limited Liability Partnership Act, 2008, for which the due dates fall between the period 1st April 2021 to 31st May 2021.

3. Relaxation for creation/modification of charges

Ministry of Corporate Affairs (MCA) had Vide notification dated 3rd May 2021 had relaxed the timelines for filing of forms related to creation/modification of charges.

As per provisions of Companies Act 2013, it is the duty of every company to create a charge with the registrar of companies within a period of 30 days from the date of creation of such charge on the assets of the company.

If the company is not able to file the charge with the Registrar of Companies (RoC) within the aforementioned period of 30 days, the company may file the same with RoC within a further period of 30 days with payment of additional filing fee and further period of 60 days is provided to file the charge with RoC with the payment of advalorem fees.

MCA vide notification dated 3rd May 2021 has relaxed the aforementioned timelines.

The relaxation is provided in two categories:

 

Category Date of creation / modification Due date to file the charge Calculation of due date
1 Is before 1st April 2021

 

and

 

timelines as aforementioned has not expired

Falls between 1st April 2021 to 31st May 2021 Number of days shall be counted excluding the period 1st April 2021 to 31st May 2021
2 Between 1st April 2021 to 31st May 2021 NA The first day for calculating the timeline starts from 1st June 2021.

The relaxation is not applicable to filing of Form CHG-4 for satisfaction of charge.

Authored by Padma Akila

DATE(S) OF ORDER: 15th April 2021

PURPORTED CONTRAVENTION COMMITTED: One of the directors of the Company traded in its scrip during the window closure period without taking pre-clearance for executing trades, leading to violation of Cl. 4.2.2 and 4.3.1 of Code of Conduct for Prevention of Insider Trading (COC) of the Company r/w Cl. 3.2.2 & 3.3.1 respectively, of Model Code of Conduct for Prevention of Insider Trading for Listed Companies (Model COC) specified in Part A of Schedule I to Regulation 12(1) & 12(2) of the PIT Regulations, 1992, r/w Regulation 12(2) of PIT Regulations, 2015.

PERSONS CHARGED AND WHO ARE THEY: M Narasimha Rao- Director (Noticee)

COMPANY THAT DID NOT FULFILL THE DISCLOSURE REQUIREMENTS: Trinethra Infra Ventures Limited (Company)

BACKGROUND OF THE CASE:

1. Pursuant to an investigation for the period from 1st January 2009 to 31st March 2010, it was found that the Noticee traded in the scrip of the Company during the window closure period, without taking pre-clearance for executing trades, leading to the contraventions of the provisions mentioned in the table above.

2. The Show Cause Notice (SCN) was sent through speed post with acknowledgement due which was returned undelivered. Thereafter, SCN was served on the Noticee through publication, and the Noticee was also granted an opportunity of personal hearing. However, no reply was received from the Noticee.

FINDINGS BY THE ADJUDICATING OFFICER (“AO”):

1. The Noticee traded in the scrip of the Company during the two window closure periods, over four trading days. Owing to this fact, the Company had issued two warning letters dated 5th November 2009 and 4th February 2010 pertaining to the two window closure periods to Noticee.

2. On perusal of the Trade Integrated Order log of the Company, it was noted that the Noticee carried out 113 such trades comprising of 93 sell and 20 buy trades, spread over the four trading days.

3. The Noticee also carried out the said trades in the scrip of the Company without obtaining requisite pre-clearance for such trades. As per Cl. 4.3.1 of the COC of the Company r/w Cl. 3.3.1 of Model COC specified in PIT Regulations, 1992, Noticee, being a Director of the Company during the investigation period, was required to obtain pre-clearance for trading in the securities above a threshold of 5000 shares, which he failed to perform,

4. The AO observed that the material available on record does not quantify any disproportionate gains or unfair advantage, made by the Noticee and the losses, if any, suffered by the investors due to such violations on the part of the Noticee. However, it was noted that Noticees actions indicated the repetitive nature of violations committed in this regard.

DECISION OF THE AO:

Having concluded that the Noticees had violated Cl. 4.2.2 and 4.3.1 of COC of the Company r/w Cl. 3.2.2 & 3.3.1 of the Model COC specified in Part A of Schedule I to Regulation 12(1) & 12(2) of the PIT Regulations, 1992, r/w Regulation 12(2) of PIT Regulations, 2015, the AO imposed a penalty of 1 lakh on the Noticee.

COMMENTS: This is a decision that highlights that under the SEBI Act, there is no specification of the limitation period and nor is the concept of “laches” applicable to adjudication by SEBI. In this case, the period of investigation has been from January 2009 to March 2010, and the show-cause notice to the Noticee was issued only in December 2020. It is also noteworthy to mention that SEBI imposes a penalty for an offense of a regulation ten years after it has been superseded, merely under the strength that there was no sunset clause in the new regulation for either commencement or completion of the investigation or adjudication under the PIT, 1992.

Authored by Aishwarya Lakshmi V.M

In the matter of: Money Booster – Proprietor Mr. Anurag Singh

Noticees: Money Booster & Anurag Singh.

Date of the Final order: 22.04.2021

Provisions invoked

(a) Section 12(1)[i] of the Securities Exchange Board of India Act, 1992.

(b) Regulation 4(2)(k)[ii] of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003.

Regulation 3(1)[iii] of SEBI (Investment Adviser) Regulations, 2013.

Facts of the case:

1. SEBI received various complaints against Noticee 1 inter alia raising allegations such as –

a) Forcing to pay more money in the name of demat account opening.

b) Giving false commitments relating to trading.

c) Not providing any service for the money given.

The Noticees without receiving the payments through gateways such as Bhartipay had received the amounts directly in their bank accounts.

2. The Complainants provided WhatsApp conversation screenshots, bank details to which they had transferred their money, email ID, phone number etc. Based on the available information it was understood that Noticee 2 was the proprietor of Noticee 1. A google search of the website moneybooster.in shows that Noticee 1 advertised itself as one of the leading financial service provider and investment advisory company in India.

3. However, the SEBI Registration ID of the Noticee 1 belonged to another entity having the same name and whose proprietor coincidentally shared the same name as that of Noticee 2. While the Noticee 2 projected himself to be residing at Indore, the original SEBI registered Investment Advisor’s proprietor was situated at Gurgaon.

4. The Noticees were holding themselves out as Investment Advisors, when in reality they did not possess any certificate of registration under the Investment Advisor Regulations, 2013.

Interim Order of the AO:

The Noticees had knowingly misrepresented to the investors by showing / advertising the SEBI registration number of some other SEBI registered Investment Advisor. The Noticees had also promised sure shot profits and had actively concealed that investment in the securities market is subject to market risks. Hence, the AO found the Noticees liable for violating the securities laws.

Issue:

Whether the Noticees are liable for appropriate directions, under the SEBI Act, 1992, as proposed in the interim order?

Decision of the WTM:

1. The WTM upheld the interim order of the AO and held that the Noticees who had promised to give assured returns violated the circular of SEBI providing the regulations for Investment Advisers.

2. Also the Noticees had voluntarily disseminated information or advice through media, knowing it to be false and misleading and which is designed or likely to influence the decision of the investors while dealing with securities. Hence, the WTM observed that the Noticees had violated the PFUTP Regulations, 2003.

3. The Noticees held themselves out as investment advisors when in reality they were not. Hence, they had violated the SEBI Act, 1992 and the SEBI (Investment Advisers) Regulations, 2013.

4. SEBI while upholding the Interim AO Order, inter alia directed the Noticees

a) to refund the amount to the investors,

b) to issue public notice regarding the modalities for refund,

c) to file a completion report with SEBI,

d) as debarred from accessing securities markets for a period of 2 years,

e) as debarred from associating themselves with any company associated with SEBI for a period of 2 years,

Regulatory issues that are to be noted from this decision of WTM:

1.Client of an investment advisor ought to carry out due diligence before paying money to the said investment advisor. SEBI has hosted the list of registered Investment Advisors in its website at:

https://www.sebi.gov.in/sebiweb/other/OtherAction.do?doRecognisedFpi=yes&intmId=13 and the same may be checked.

2. Further, an Investment Adviser who gives advisory services to their clients for consideration ought to get themselves registered with SEBI, lest it will tantamount to violation of the SEBI (Investment Adviser) Regulations, 2013.

[i] Section 12, Regulation of stockbrokers, sub-brokers, share transfer agents: 2. (1) No stockbroker, sub-broker, share transfer agent, banker to an issue, trustee of a trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with securities market shall buy, sell or deal in securities except under, and in accordance with, the conditions of a certificate of registration obtained from the Board in accordance with the 53[regulations] made under this Act.

[ii] Regulation 4, Prohibition of manipulative, fraudulent and unfair trade practices: (2)(k) Dealing in securities shall be deemed to be a manipulative fraudulent or an unfair trade practice if it involves disseminating information or advice through any media, whether physical or digital, which the disseminator knows to be false or misleading and which is designed or likely to influence the decision of investors dealing in securities.

[iii] Regulation 3, Application for Grant of Certificate: (1) On and from the commencement of these regulations, no person shall act as an investment adviser or hold itself out as an investment adviser unless he has obtained a certificate of registration from the Board under these regulations.

Authored by Aishwarya Lakshmi V.M.

Applicant: PayTM Money Limited

Date of the guidance: 09.04.2021

Factual Background:

1. The Applicant is a non-individual SEBI registered Investment Adviser and is also carrying on the business of stock broking and depository participant.

2. The Applicant also offers execution services to its clients inter alia including Asset Management Companies by incurring out-of-pocket expenses, but without getting any commission or brokerage.

3. The Applicant intends to obtain electronic consent from its clients for executing the mandatory agreement as prescribed by SEBI in its Circular dated September 23, 2020.

4. Also, the Applicant intends to appoint an ‘equivalent management body’ as the principal officer for the purpose of the Regulations.

Guidance sought:

1. Whether obtaining reimbursement of out-of-pocket expenses from clients would violate Regulation 22A of SEBI (Investment Advisers) Regulations, 2013?

2. Whether obtaining electronic consent from its clients would be sufficient to qualify as ‘agreement’ between the Applicant and its clients?

3. Whether a Committee appointed by the Board to oversee the advisory functions can be considered as ‘Equivalent Management Body’ and whether a member of the Committee can be appointed as ‘Principal Officer’ for the purpose of the Regulations?

Provisions Involved:

Regulations 22A,[i] 19(1)(d)[ii] and 2(1)(s)[iii] of SEBI (Investment Advisers) Regulations, 2013.

Informal Guidance by SEBI:

i. SEBI, while relying on Clause 1 of the said Regulation 22A, interpreted the term ‘by whatever name called, whether directly or indirectly’ and stated that the Applicant cannot avail reimbursement of out-of-pocket expenses from its clients.

ii. SEBI, drawing reference from Annexure A of the circular dated September 23, 2020[i], clarified that the ‘agreement’ as envisaged in the said Regulation 19(1)(d) should contain certain mandatory covenants. Hence, it categorically laid down that obtaining a mere electronic consent would not qualify as an ‘agreement’ between the Applicant and its clients.

iii. SEBI clarified that the head/member of the Board of Directors can only be construed as ‘Principal Officer’ for the purpose of SEBI (Investment Advisers) Regulations, 2013. The context of using the term “Equivalent Management Body” in the said definition is to be understood in respect of other non-individual Investment Advisers, such as an LLP. Hence, any member of a Committee appointed by the Board cannot be appointed as the ‘Principal Officer’ for the purpose of the Regulations. If the Investment Adviser is a company, the principal officer can only be the Managing Director or any director designated specifically for the said purpose.

The letter of SEBI can be read at: https://www.sebi.gov.in/sebi_data/commondocs/apr-2021/sebi_let_IG_paytm_p.pdf

As per the Informal Guidance [Scheme] 2003 of SEBI, the guidance provided is applicable only to the Applicant, and is should not be construed as a conclusive decision or determination of any question of law or fact by SEBI, and is also not an Order u/S 15T of SEBI Act, 1992.

[i] Reg. 22A, Implementation of advice or execution:

(1)  Investment adviser may  provide  implementation  services  to  the  advisory  clients  in securities market:

Provided that investment  advisers  shall ensure  that  no  consideration  including  any commission  or  referral  fees,  whether  embedded  or  indirect  or  otherwise,  by  whatever name called is  received; directly  or indirectly, at investment adviser’s group or family level for the said service, as the case maybe.

(2)  Investment adviser shall provide implementation services to its advisory clients only through direct schemes/products in the securities market.

(3)  Investment adviser or group or family of investment adviser shall not  charge  any implementation fees from the client.

(4) The client shall not be under any obligation to avail implementation services offered by the investment adviser.

[ii] Reg 19, Maintenance of Records:

1) An Investment Adviser shall maintain records:

  1. d) Copies of agreements with clients, incorporating the terms and conditions as may be specified by the Board.

[iii] Reg. 2(1)(s), Principal Officer: “principal officer” shall mean the managing  director  or  designated  director  or managing partner or executive chairman of the board or equivalent management body who is responsible for the overall function of the business and operations of non-individual investment adviser.

[i] The said circular can be accessed at: https://www.sebi.gov.in/legal/circulars/sep-2020/guidelines-for-investment-advisers_47640.html

Authored by Adit Bhuva

We had in our article, discussed the SEBI’s decision to introduce new reporting on Environmental, Social & Governance (‘ESG”) parameters called the Business Responsibility and Sustainability Report (“BRSR”), in place of the existing Business Responsibility Report (“BRR”) and provided an overview on the format of BRSR suggested by the committee formed to review the existing format of BRR.

Now SEBI has vide its circular dated 10th May 2021, notified the format of BRSR and the guidance note to enable the companies to interpret the scope of disclosures. The format of the BRSR and the guidance note can be viewed here and here respectively.

The BRSR reporting shall be applicable to the top 1000 listed entities (by market capitalisation), for reporting on a voluntary basis for FY 2021-22 and on a mandatory basis from FY 2022-23.

Authored by Adit Bhuva

BACKGROUND:

In 2015, the regulatory framework for Institutional Trading Platform (ITP) was put in place vide amendment to SEBI (Issue of Capital and Disclosure Requirement) Regulations, 2009, (“erstwhile ICDR Regulations, 2009”), with a view to facilitate new age entities which are intensive in the use of technology, information technology, intellectual property, data analytics, biotechnology or nano-technology to provide products, services or business platforms with substantial value addition, with early-stage investors, an opportunity for listing with a simple framework compared to the main-board.

Listing on this platform can be pursuant to an IPO or without an IPO. However, the ITP framework failed to evince interest.

In 2019, SEBI attempted to revive the platform by introducing certain amendments to the ITP framework and renamed it the Innovators Growth Platform (IGP). However, market interest in the platform continued to be tepid.

Hoping to encourage the technology-based entities to list their securities on IGP, SEBI has on 5th May 2021, relaxed certain eligibility & listing criteria for listing on Innovators Growth Platform.

CHANGES/RELAXATIONS:

(A) Companies with Special Voting Rights Shares (“SR”) to its promoters/ founders, allowed to do an IPO under IGP framework:

Background/pre-amendment provision Change/relaxation
The Pre-amendment IGP framework did not allow issuer companies to do an IPO of only ordinary shares for listing on the IGP if it issued special voting rights y shares to its promoters/ founders. Now such companies which has issued special voting rights shares can do an IPO of ordinary shares. There can be two classes of shares of which only one is listed.

(B) Reduction in holding period of percentage of pre-issue capital by certain category of investors:

Background/pre-amendment provision Change/relaxation
A certain category of investors (“Pre-issue Investors”)[i] were required to hold at least 25% of the pre-issue capital for a period of 2 years prior to the date of filing of draft information document or draft offer document with the Board.

The Pre-issue Investors consist of both Institutional investors and non-institutional investors.

 

 

This pre-issue holding period has been reduced to 1 year.

(C) Family Trusts included in the category of investors required to hold the pre-issue capital:

Background/pre-amendment provision Change/relaxation
As specified in para (B) above, a certain category of investors had to hold at least 25% of pre-issue capital at the date of filing of draft information document or draft offer document with SEBI.

 

These categories of investors have been prescribed under the regulations. Family Trusts was not included in this category.

SEBI has included Family Trust with a net worth of Rs. 25 Crores, as an eligible category of investors for the purpose of holding at least 25% of pre-issue capital. With these entities having angel investments, and with many angels having invested through their family trusts, this would bring many such entities within the eligibility criteria to be listed on IGP.

 

(D) Removal of sub-limit on pre-issue capital to be held by Innovators Growth Platform Investors (‘IGP Investors”).

Background/pre-amendment provision Change/relaxation
Out of the 25% to be held by Pre-issue Investors, the holding by the IGP investors could not have exceeded 10% of the pre-issue capital.

 

One of the category of Pre-Issue Investors are Innovators Growth Platform Investors (‘IGP Investors”)[i].

 

These IGP Investors are required to get accreditation as IGP Investors from stock exchange/depositories as per the prescribed procedure.

This sub-limit of 10% has been removed and hence IGP Investors can hold the entire 25% of the pre-issue capital.  

(E) Discretionary allocation allowed:

Background/pre-amendment provision Change/relaxation
The allotment to institutional investors as well as non-institutional investors was to be only on a proportionate basis.

 

.

 

Now 60% of the issue size on a discretionary basis, can be allocated to the category of Pre-issue Investors or Eligible Investors.

 

Conditions:

 

1. This will be in accordance with the requirements with respect to anchor investors for public issue made on the SME exchange as specified in Part A of Schedule XIII to SEBI ICDR regulations.

 

2. The price of the specified securities offered to Eligible Investors shall not be lower than the price offered to other applicants.

 

3. The Eligible Investors shall make an application of a value of at least Rs. 50 lakhs.

(F) Lock-in of Pre-issue capital – exemptions

Background/pre-amendment provision Change/relaxation
The entire pre-issue capital of the shareholders prior to the issue, is locked-in for a period of six months from the date of allotment in case of listing pursuant to a public issue or date of listing in case of listing without a public issue.

 

However there are certain categories of shareholders who are exempted from this lock-in requirement.

 

One of the categories which is exempted is the category I Alternated Investment Fund.

Now category II AIF has also been exempted from the lock-in requirement.

 

(G) Relaxation of delisting norms for listing done through IPO:

The existing delisting norms pertaining to approval of the public shareholders, determination of offer price, minimum number of shares to be acquired by the acquirer/promoter are too stringent and onerous and hence the same have been relaxed in the following manner:

Particulars Provision prior to amendment Change/relaxation
Approval The special resolution of shareholders could have be acted upon only if the ratio of votes of public shareholders favoring the delisting to against was 2:1. Now, the special resolution for delisting can be acted upon if the votes cast by the majority of public shareholders are in favor of such exit proposal. From a 66.67% votes in favour, it has now been changed to a simple majority in favour.
Offer price The offer price shall be determined through book building after fixation of floor price that is arrived at as per the provision of Regulation 8 of SEBI (SAST) Regulations, 2011 Requirement of book building is removed.

 

Acquirer/Promoter can determine the delisting premium, and justify the same and add the same to the floor price determined in terms of regulation 8 of SEBI (SAST) Regulations, 2011

Minimum number of shares to be acquired by the acquirer/promoter Promoter shareholding was to reach 90% of total paid-up share capital during the delisting. The delisting can be done if after the offer for delisting, the promoter/acquirer shareholding is 75% of total paid-up share capital and at least 50% of shares of public shareholders have been accepted.

(H) Migration from IGP to main board

Background/pre-amendment provision Change/relaxation
For migration from the IGP platform to the main-board, a company that does not satisfy the conditions of profitability, net worth, net assets, etc., needs to have 75% of its capital held by Qualified Institutional Buyers (QIBs) on the date of migration. However, they have been relaxed now, and there is a reduction in the requirement from 75% to 50%.

CONCLUSION:

Given the importance of start-ups and technology-based entities in nation-building and the contribution of the early-stage investors in the growth of these entities, the Institutional Trading Platform (now Innovators Growth Platform) was introduced to provide easy listing by start-ups and liquidity for its Investors.

The aforesaid relaxations and changes are to further encourage investments in these tech companies, by easing its entry into listed space, bringing more start-ups within the eligibility criteria for listing on IGP, and easing the delisting norms for the benefit of the investors and the start-ups.

 

It is imperative to note that there is no bar on the age of these companies to get listed on IGP,as long as they are into technology and innovation.


[i]
The following categories will be considered as Pre-issue Investors (s.no. I & II below are institutional investors and s.no. III below falls under the category of non-institutional investors):

  1. QIBs;
  2. The following regulated entities:
  3. FPI;
  4. An entity meeting all the following criteria:
  5. It is a pooled investment fund such as mutual funds, AIF etc.. with minimum AUM of USD 150 million;
  6. It is registered with a financial sector regulator in the jurisdiction of which it is a resident;

iii. It is resident of a country whose securities market regulator is a signatory to the International Organization of Securities Commission’s Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to Bilateral Memorandum of Understanding with the Board;

  1. It is not resident in a country identified in the public statement of Financial Action Task Force as:
  2. a) a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or
  3. b) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies. 

III Innovators Growth Platform Investors (“IGP Investors”) for the purpose of IGP;

[i] The IGP Investors consists of:

(i) any individual with a total gross income of Rs. 50 lakhs annually and who has a minimum liquid net worth of Rs. 5 crores; or

(ii) any body corporate with net worth of Rs. 25 crores.

(iii) any family trust with net worth of Rs. 25 crores.

 

 

Authored by Padma Akila

Recent growth in the startup sector, with the local modern ventures going overseas, the government through the Department for Promotion of Industry and Internal Trade (DPIIT), had made startup friendly amendments to the various intellectual property rules. In our previous articles we had summarized the amendments featuring provisions and rules for startups under the Draft Patents (Amendment) Rules, 2021 and the Designs (Amendment) Rules, 2021 in our intellectual property blog. SEBI has followed these footsteps to approve the certain startup friendly decisions in its board meeting dated 25thMarch, with respect to SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, and SEBI (Alternative Investment Funds) Regulations, 2012

Note: To address the availability of capital from the public market for startups and for their listing, SEBI had introduced the Innovators Growth Platform (IGP).

Approvals under   SEBI (Issue   of   Capital   and   Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”):

1. Eligibility: At present eligibility requirement under IGP is for an issuer to have 25% of pre-issue capital held by eligible investors for two years period, is reduced to one year as per rule 283 of ICDR Regulations.

2. IGP Investors: The term ‘Accredited Investor’ for the purpose of IGP under rule 283 is renamed as ‘Innovators Growth Platform Investors’.

3. Pre-issue shareholding percentage: At present, pre-issue shareholding of such investors for meeting eligibility, is considered for only 10%, (as given in the explanation to rule 283) which is now increased and shall be considered for the entire 25% required for meeting eligibility norms.

4. Discretionary allotment: In terms of present IGP provisions, Issuer Company is not permitted to make discretionary allotment. Post amendment, Issuer Company can allocate up to 60% of the issue size on a discretionary basis, prior to issue opening, to eligible investors with a lock in of 30 days on such shares.

5. Superior Voting Rights: Companies with Superior Voting Rights (SR) equity shares for promoters/ founders shall be allowed to do listing. This is in line with the mainboard IPO.

6. Triggering open offer: Stipulation for triggering open offer requirement for companies listed under IGP has been increased from 25% to 49% of the total equity. However, an open offer will still be triggered if there is a direct or an indirect change in control.

Authored by Padma Akila

In our earlier article we had summarised the decision of the AO in the WhatsApp leak case wherein the financial results of companies like Bata India Limited, Asian Paints Limited, Mindtree Limited & Wipro Limited among others were forwarded through WhatsApp by certain individuals (“Noticees/Appellants”) employed in stock broking companies, who according to SEBI violated provisions of the SEBI (Prohibition of Insider Trading) Regulation, 2015 (“PIT Regulations, 2015”), and construed the information circulated as UPSI. The Securities Appellate Tribunal (SAT) by an Order dated 22nd March 2021 set aside the AO’s order in this matter. In this article we tabulate the key points from decision of the Securities Appellate Tribunal (SAT) following appeal on the same case.

S.no Contention of the Noticees Decision of the AO Decision of SAT and Rationale behind the same
1.       The information circulated through WhatsApp does not qualify to be UPSI, as there was no connection between the Noticees and the Companies or its promoters/management. The leaked information, was the same as the announcements subsequently made by the companies to the stock exchanges, and the inability to trace the source of the leaked information within the companies is irrelevant in the determination of such information being UPSI or otherwise SAT overturned the decision of the AO for the reason that despite great efforts by SEBI to find out the source of information or to find out leakage of the information from the respective companies, no information could be recovered. Further, time and again the AO himself had expressed the inability in this regard in his order.
2.       The Noticees had circulated the information to other individuals based on the estimates projected by stock broking companies which is available in the public domain and thus the circulated information fails to be qualified as UPSI. There was no evidence implying that the information circulated was based on market research which was in turn based on generally available information, and such market research was accessible to the public on a non-discriminatory basis and hence the leaked information qualified to be UPSI. SAT rejected the reasoning of the AO and held that the AO failed to take into consideration that there were numerous other messages of similar nature received and forwarded by the Appellant which did not at all match with the published information.

The information can be branded as an UPSI only when the person getting the information had a knowledge that it was UPSI. In this regard, SAT relied on its own judgement in the case of Samir Arora vs. SEBI (2004) SCC Online SAT 90 wherein it had rejected the arguments of SEBI that there is no need for linkage between the potential source of the UPSI and the person allegedly in possession of the alleged UPSI.

3.       The Noticees had not violated the provisions of Sections [1]12A(d) & [2]12A(e) of the SEBI Act, 1992 and Regulation [3]3 (1) of SEBI (PIT) Regulations, 2015 The Noticees had violated the provisions mentioned in the previous column SEBI failed to prove any preponderance of probabilities that the impugned messages were UPSI, that the Appellants knew that it was UPSI and with the said knowledge they or any of them had passed the said information to other parties thereby concluding that the Appellants had not violated the provisions of PIT Regulations, 2015 as alleged by SEBI

[1] Regulation 12A(d) – No person shall directly or indirectly engage in insider trading

[2] Regulation 12A(e) – No person shall directly or indirectly deal in securities while in possession of material or non-public information or communicate such material or non-public information to any other person, in a manner which is in contravention of the provisions of this Act or the rules or the regulations made thereunder.

[3] Regulation 3(1) – No insider shall communicate, provide, or allow access to any unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, to any person including other insiders except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.

Authored by Aishwarya Lakshmi V.M

SEBI at its action-packed Board Meeting held on 25th March 2021 approved several changes to the securities law regime in India. One of the crucial regulations within the domain of SEBI is the SEBI (Listing Obligation and Disclosure Requirement) Regulations, 2015 [hereinafter, LODR]. With a view to maintain consistency throughout LODR, to harmonize it with the Companies Act, 2013 and to strengthen corporate governance practices in addition to easing compliance burden on listed entities, it approved several amendments to LODR. Some of the key amendments are discussed hereunder.

I. Formulation of Dividend Distribution Policy:

Existing Law: As per Regulation 43A of the existing LODR Regulations, the top 500 listed entities based on market capitalisation are required to formulate a dividend distribution policy inter alia including details about the circumstances when the shareholders may or may not expect dividend, financial parameters, internal and external factors that may be considered at the time of declaring dividend etc. and disclose the same in their annual report and website. The earlier regulation also permitted compliance with this provision on a voluntary basis.

Approved Amendment: This requirement under Regulation 43A is proposed to be extended to the top 1000 listed entities based on market capitalisation.

II. Disclosure of Financial Results:

Existing Law: A conjoint reading of Regulation 30, 33 and Clause 4 of Para A of Part A of Schedule III stipulates that financial results of a listed entity ought to be disclosed to the Stock Exchange within 30 minutes from the closure of the meeting, where such financial results were considered.

Approved Amendment: Considering a scenario that a single Board Meeting is held on more than one day, SEBI has approved the amendment wherein the disclosure requirement with regard to financial results shall be complied with by the listed entity within 30 minutes of end of the board meeting for the day on which the financial results are considered.

III. Continuous Applicability:

Existing Law: The applicability of various provisions of LODR is based on criteria including market capitalization, paid up capital and net-worth thresholds. These are monetary figures that keep varying year-on-year.

Approved Amendment: SEBI has approved an amendment wherein those provisions of LODR which become applicable to a listed entity based on the threshold of market capitalization shall continue to be applicable even if the entity falls below the prescribed threshold. Some provisions that become attracted based on market capitalization include –

a. Formulation of dividend distribution policy.

b. One-way live webcast of proceedings of AGM.

c. Composition of the Board, including Independent Woman Director and Non-executive Chairperson.

d. Quorum for Board Meetings.

e. Risk Management Committee.

Also SEBI has approved an amendment that wherever the provisions become applicable based on Paid up share capital and net-worth thresholds, such provisions shall continue to apply unless the paid-up capital or net-worth falls and continues to remain below the threshold for a consecutive period of 3 years.

IV. Name Change for Listed Entity:

Existing Law: Regulation 45 of the LODR elaborates a detailed procedure where the approval of Stock Exchange has to be obtained for change of name of the listed entity.

Approved Amendment: The requirement to obtain approval of the stock exchange for change of name is dispensed with.

V. Streamlining timelines for submission of periodic reports:

Existing Law: As per Regulation 27(2) of LODR, the report on Corporate Governance has to be filed within 15 days from the end of each quarter, while as per Regulation 13(3) and 31(1), the statement on investor complaints and the shareholding pattern ought to be filed within 21 days from the end of each quarter.

Approved Amendment: SEBI has approved an amendment such that all the aforementioned periodic disclosures / reporting shall be made within 21 days from the end of each quarter.

VI. Frequency of 40(9) Certificate:

Existing Law: As per Regulation 40(9), the listed entity shall ensure that the share transfer agent or the in-house share transfer facility provider, shall produce a certificate from a practicing company secretary within one month of the end of each half of a financial year, certifying that all certificates have been issued within thirty days of the date of lodgment for transfer, sub-division, consolidation, renewal, exchange or endorsement of calls/allotment monies.

Approved Amendment: The Board has approved an amendment wherein this half yearly compliance has now been made as an annual compliance.

VII. Dispensing certain newspaper advertisements:

Existing Law: As per Regulation 47 (1) of LODR, notice of meeting where financial results are to be discussed and quarterly statement on deviation or variation of use of fund ought to be advertised in one English newspaper and one regional language newspaper.

Approved Amendment: This requirement to advertise the notice of the meeting and quarterly statement on deviation has been dispensed with.

Authored by Aishwarya Lakshmi V.M

In our earlier article on the consultation paper circulated by SEBI for re-classification of promoters, we had outlined the changes that SEBI had proposed in it. At its action-packed Board Meeting held on 25th March 2021, the mater relating to this was tabled, and SEBI has approved certain amendments based on the said consultation paper, to Regulation 31A of SEBI (Listing Obligations and Disclosure Requirement) Regulations, 2015.

We update the changes that have been approved and also mark those that were proposed in the consultation paper, for which no changes have been made by SEBI.

S. No. Relevant Requirement Existing Proposed Rationale for proposing the change Change Approved or not
1 Condition pertaining to minimum threshold of voting rights – by promoters seeking reclassification and those related to promoters seeking reclassification. 10% 15% Persons who may have been promoters but are no longer in day-to-day control having shareholding of less than 15% may “opt-out” from being classified as “promoters”, without having to reduce their shareholding. No decision taken on this proposal that was part of the consultation paper.
2 Minimum time period between board meeting and general meeting 3 Months 1 Month The minimum time gap of three months is too long increasing the total time taken in the process. Change proposed in the consultation paper has been approved.
3 Reclassification pursuant to an order / direction of Government or regulator Applicable to Resolution Plan under S.31 of the IBC, 2016. Expanding the scope to order / direction of Government / regulator Since it’s a natural consequence to undergo reclassification pursuant to an order / direction of Government or regulator the proposed limit eases the process. Change proposed in the consultation paper has been approved.
4 Reclassification of existing promoter pursuant to open offer under SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2015 [SAST Regulations] No existing provision 1.

The intent of the existing promoter(s) to re-classify is disclosed in the letter of offer

 

 

2. Reclassification if the promoter is non-traceable or non-cooperative and the Company has taken efforts to contact the promoter.

1. The requirement of promoter making an application for reclassification is a mere procedural formality since the fact is disclosed in the Letter of Offer and the information is already present in the public domain.

 

2. The non-traceability and non-cooperation of promoters results in the continued classification of the concerned as promoter despite losing actual control of the company.

The first proposal in the consultation paper relating to re-classification when the intent of the existing promoter is disclosed in the letter of offer, has been approved, if (a) the outgoing promoter is not in control; and (b) if he is not represented on the board.

 

No decision has been taken relating to the other suggestion that was proposed, relating re-classification in case of non-traceability of promoter.

5 Time period to place the reclassification request before the board of directors No existing provision Within one month of receiving the request from the promoter / promoter group. There are cases where the request is not placed before the Board thus ceasing the process in its initial phase itself. No decision taken on this proposal that was part of the consultation paper.
6 Disclosure of Names of Promote Group Entities in the shareholding pattern. No existing provision All entities falling under promoter / promoter group shall be disclosed even in case of “NIL” Shareholding.

 

 

 

Listed entities to obtain quarterly declaration from their promoters specifying the names of entities / persons that form part of the ‘promoter group’.

Though Regulation 31 clearly prescribes the disclosure of ‘all entities’ there are cases where listed companies have not been disclosing names of persons in the promoter / promoter group with “Nil” Shareholding. No decision taken on this proposal that was part of the consultation paper.

Authored by Praveen Pandian

Earlier in December 2020, SEBI had issued a consultation paper regarding Risk Management Committee which we had summarized here. SEBI at its Board Meeting dated 25th March 2021 approved the following amendments to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 in relation to applicability, constitution and role of the Risk Management Committee of listed entities.

Applicable Regulation: Regulation 21 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 deals with Risk Management Committee.

Subject Existing Law Approved Amendment
Applicability Top 500 listed entities based on market capitalization. Top 1000 listed entities based on market capitalization.
Composition Majority members from the Board of directors. Minimum of three members where majority of them being member of the board of directors, including at least one independent director.
Quorum No specific provisions for quorum were prescribed. Two members or one third of the members of the committee, whichever is higher, with at least one director in attendance.
Role As defined and delegated by the Board including reviewing risk management plan. In addition to the existing role the Committee is also tasked with formulation of risk management policy, monitoring and reviewing its implementation; review of the appointment, removal and terms of remuneration of Chief Risk officer (if any).

Authored by Aishwarya Lakshmi V.M

Background: As per Regulation 24A of SEBI (LODR) Regulations, 2015, every listed entity and its material unlisted subsidiaries shall undertake secretarial audit and annex with its annual report, a secretarial audit report given by a company secretary in practice. As per SEBI Circular No.CIR/CFD/CMD1/27/2019 dated February 08th 2019, the annual secretarial compliance report shall be in the format as specified in Annex-A to the circular and shall be submitted to the stock exchange where the entity is listed within 60 days from the end of the financial year. This filing with the stock exchange has been only in PDF format, till date.

Update: As per the Notice from BSE dated 31st March 2021, dated Notice No.20210331-2, it has been made mandatory to file the Annual Secretarial Compliance Report in BOTH PDF AND XBRL MODE. The timelines shall be the same.

Authored by Adit Bhuva

The Securities and Exchange Board of India (“SEBI”) has at its board meeting held on 25th March 2021, decided to introduce new requirements for sustainability reporting by listed companies, to be called the Business Responsibility and Sustainability Report (“BRSR”), replacing the existing Business Responsibility Report (“BRR”).

The BRSR shall be applicable to top 1000 listed entities (by market capitalisation), for reporting on a voluntary basis for FY 2021-22 and on a mandatory basis from FY 2022-23.

Brief background on the introduction of BRSR:

1. SEBI had introduced non-financial reporting in the form of BRR as part of annual reports for the top 100 listed companies in the year 2012.

2. Applicability of BRR extended to top 500 listed companies in the year 2016

3. Applicability of BRR extended to top 1000 listed companies from the financial year 2019-20.

4. The existing format of BRR is based on ‘National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business’ (“NVGs”) issued by the Ministry of Corporate Affairs (“MCA”), Government of India.

5. In keeping with global developments and domestic changes, these NVGs were revised and released as the National Guidelines on Responsible Business Conduct (“NGRBCs”) in March 2019.

6. A committee was formed by MCA to align the existing BRR formats in line with the NGRBCs and provide new formats (“Committee”).

7. The Committee had prescribed a revised format in its report dated 8th May 2020 and to reflect the intent and scope of reporting requirement, the Committee recommended that the BRR be called the Business Responsibility and Sustainability Report (“BRSR”).

8. SEBI on 18th August 2020 issues a consultation paper, inviting public comments on the format of BRSR by 18th September 2020.

9. On 25th March 2021, SEBI decides to make the BRSR applicable to top 1000 listed entities (by market capitalisation), for reporting on a voluntary basis for FY 2021-22 and on a mandatory basis from FY 2022-23.

Status on the notification of the Format of BRSR by SEBI:

It is to be noted that SEBI is yet to notify the format of BRSR. However an overview on the format of BRSR as suggested by the Committee is provided below:

(a) Principles under which the BRSR to be done:

The non-financial disclosures which are from an Environmental, Social and Governance (“ESG”) perspective, are sought under 9 principles for measuring the performance of the businesses in the area of business responsibility and sustainability:

(i) Businesses should conduct and govern themselves with integrity in a manner that is ethical, transparent and accountable

(ii) Business should provide goods and services in a manner that is sustainable and safe

(iii) Businesses should respect and promote the well-being of all employees, including those in their value chains.

(iv) Business should respect the interest of and be responsive to all its stakeholders

(v) Businesses should respect and promote human rights

(vi) Business should respect and make efforts to protect and restore the environment

(vii) Business, when engaging in influencing public and regulatory policy, should do so in a manner that is responsible and transparent.

(viii) Businesses should promote inclusive growth and equitable development

(ix) Businesses should engage with and provide value to their consumers in a responsible manner

(b) The BRSR lays considerable emphasis on quantifiable metrics, which allows for easy measurement and comparability across companies, sectors and time periods.

(c) Further, the disclosures on environmental and social (employees, consumers and communities) related issues of a listed entity have been significantly enhanced and made more granular.

(d) The disclosures under the aforesaid principles are categorised under

(i) Essential (mandatory) indicators; and

(ii) Leadership (voluntary) indicators.

(e) The BRSR format contains a section on management and process disclosures, which will help businesses demonstrate the structures, policies and process put in place towards adopting the aforestated principles, wherein the businesses are required to disclose the policies adopted by them to cover each of the above stated principles and review of the implementation of such policies.

Authored by Padma Akila

Registrations of trademarks as a series have recently gathered momentum and are fairly new to the trademark game. Series trademarks are believed to have potential to offer next level of protection to powerful Industries and brands.

A trademark owner may use a variety of marks with a common prefix, suffix or syllable or for instance in case of a beverage brand with various flavours of the drink, the trademark may remain constant with only few variables such as that of the specific flavour name of the drink or the colour and theme of the representation etc. In this case the overall impression of the trademark on the consumer does not change and remains constant.

The mark can prove its strength by establishing that it has a family of marks, all of which have a common prefix, suffix or syllable. Series of trademarks basically means multiple variations of a trademark that fall under one single family of marks. Section 15 of the Trademarks Act, 1999 deals with trademark as a series which states that if the proprietor of a trademark claims to be entitled to the exclusive use of any part thereof separately, he can apply to register the whole and the part as separate trademarks. Series marks help form an association among the products under a single range or brand as they fall within the same family of marks and distinguish them from the other range of products. One must know that trademarks as a series only differ either in colour, quality, flavour in case of food stuff, location, etc.

These series of marks can be registered within one application whereby certain characters that form part of the trademark can be granted additional protection, thus acquiring distinctiveness and exclusive right over them. Under a trademark series, any variation in the non-distinctive features of each mark must have their visual, oral and conceptual identity largely the same and any variation in those material particulars should not affect the visual and conceptual identity of each of the mark in the series. Scrutiny falls on that part of the mark that is being changed each time. If the part that is being altered is descriptive or non-distinctive, and does not substantially affect the identity of the trademark, the series may be accepted. The alternative to applying for a series trademark is to apply for multiple trademarks application for each mark but it may not offer a broader protection.

Some of the examples of series trademarks include Uber’s, UberEats, UberPool and UberX and McDonald’s family of trademarks including Egg McMuffin, McChicken, McDonuts, McPizza, McCafe, Chicken McNuggets, McDouble Chicken McBites etc.

Authored by Padma Akila

In a recent interim order passed on the 9th March 2021, in the matter of Sanjay Soya Private Limited V Narayani Trading Company, the Hon’ble High Court of Bombay held that registration of a copyright is not mandatory for the purposes of filing an infringement action under the Copyright Act, 1957.

If a brand owner’s logo has original, creative and artistic characteristics, it is advisable for such brand owners to additionally seek a copyright protection over the same under the provisions of the Copyright Act, 1957 as an artistic work apart from seeking a trademark registration over the same under the Trademarks Act, 1999. This additional protection under the Copyright Act, 1957 also entitles such brand owners to enforce their proprietary rights and seek remedies available under the Copyright Act, 1957 in case of any infringement by third parties. Registration of logos can greatly benefit brand owners and have high evidentiary value in both, trademark and copyright enforcement and infringement prosecutions. Therefore, an ideal plan of action for a brand owner, would be to seek protection of their original and unique logos under both the laws. While it is compulsory for a trademark to be registered for filing an infringement action under the Trademarks Act, 1999, registration of an artistic work (logo) as a copyright is not mandatory for the same purpose under the Copyright Act, 1957, and this was confirmed by the Hon’ble High Court of Bombay in the aforesaid matter. Hon’ble Justice GS Patel while delivering the judgment emphasized on the literal interpretation of Section 51 of the Copyright Act (Section 51 defines infringement of copyright) which read with Section 45 (1) (which says that the owner of copyright may apply for registration) establishes that copyright infringement lies in the unlicensed use of original works, in which the author has a range of exclusive rights and that registration is not a prerequisite. The Court also declared that two of the earlier single bench decisions of the Bombay High Court in Hiraj Dharamdas Dewani v. Sonal Info Systems Pvt Ltd & Ors., 2012 (3) Mh LJ 888, and Gulfam Exporters & Ors. v. Sayed Hamid & Ors. (unreported) have not followed the correct interpretations of the provisions under the Copyright Act, 1957 nor have they considered authoritative precedents that had interpreted the law on the subject matter rightly.

In this regard, it is stated the Indian Courts have on various occasions held time and again that a registration under the Copyright Act, 1957 merely raises a prima facie evidence of ownership of the registrant in respect of the particulars entered in the Register of Copyright and the presumption is however not conclusive. It is pertinent to note that a Copyright subsists as soon as the work is created and given a material form even if it is not registered.

Authored by Praveen Pandian

Brief Background on Annual Return under Companies Act, 2013:

An annual return is a yearly return to be filed by all the companies with the Registrar of Companies, certifying the compliances with the provisions of companies act and in which the companies are required to make detailed disclosures such as details of shareholders and directors and the changes in them during the financial year, the dates of Board and general meetings and attendance of directors and shareholders and various other disclosures.

This annual return is required to be filed with the Registrar of Companies in e-Form MGT-7, within a period of sixty days from the conclusion of annual general meeting or sixty days from which such annual general meeting should have been held.

Amendments with respect to annual return:

The Ministry of Corporate Affairs on 5th March 2021, has notified certain amendments (“Amendment”) in provisions relating to annual return the brief of which is provided in the below table:

S. No. Particulars Prior to Amendment Post Amendment

 

1 Requirement of filing annual return in form MGT-7 All companies including Small companies and one person company were required to file annual return in form MGT-7 Small companies and one person company are required to file annual return in MGT- 7A

 

Other Companies will continue to file annual return in form MGT-7

2 Extract of annual return on Board’s report An extract of annual return in form MGT-9 was required to be provided in Board’s report, in case of Companies not having a website. This requirement is done away with
3 Disclosure on indebtedness of the Company All companies were required to disclose the details of indebtedness in form MGT-7 This requirement is done away with.

Effective date:

The changes prescribed above are to be incorporated while filing annual return in Form MGT-7 or MGT-7A as the case may be for the financial year 2020-21 onwards.

Reference:

  1. http://www.mca.gov.in/Ministry/pdf/CommencementNotification_11032021.pdf
  2. http://www.mca.gov.in/Ministry/pdf/CompaniesMgmtAdminAmndtRules_11032021.pdf

Authored by Padma Akila

Registrations of trademarks as a series have recently gathered momentum and are fairly new to the trademark game. Series trademarks are believed to have potential to offer next level of protection to powerful Industries and brands.

A trademark owner may use a variety of marks with a common prefix, suffix or syllable or for instance in case of a beverage brand with various flavours of the drink, the trademark may remain constant with only few variables such as that of the specific flavour name of the drink or the colour and theme of the representation etc. In this case the overall impression of the trademark on the consumer does not change and remains constant.

The mark can prove its strength by establishing that it has a family of marks, all of which have a common prefix, suffix or syllable. Series of trademarks basically means multiple variations of a trademark that fall under one single family of marks. Section 15 of the Trademarks Act, 1999 deals with trademark as a series which states that if the proprietor of a trademark claims to be entitled to the exclusive use of any part thereof separately, he can apply to register the whole and the part as separate trademarks. Series marks help form an association among the products under a single range or brand as they fall within the same family of marks and distinguish them from the other range of products. One must know that trademarks as a series only differ either in colour, quality, flavour in case of food stuff, location, etc.

These series of marks can be registered within one application whereby certain characters that form part of the trademark can be granted additional protection, thus acquiring distinctiveness and exclusive right over them. Under a trademark series, any variation in the non-distinctive features of each mark must have their visual, oral and conceptual identity largely the same and any variation in those material particulars should not affect the visual and conceptual identity of each of the mark in the series. Scrutiny falls on that part of the mark that is being changed each time. If the part that is being altered is descriptive or non-distinctive, and does not substantially affect the identity of the trademark, the series may be accepted. The alternative to applying for a series trademark is to apply for multiple trademarks application for each mark but it may not offer a broader protection.

Some of the examples of series trademarks include Uber’s, UberEats, UberPool and UberX and McDonald’s family of trademarks including Egg McMuffin, McChicken, McDonuts, McPizza, McCafe, Chicken McNuggets, McDouble Chicken McBites etc.

Authored by Aishwarya Lakshmi VM

In the matter of: Thomas Cook (India) Limited

Date of the order: 11.02.2021.

Provisions involved

(a) Regulation 28 of SEBI (Buy Back of Securities) Regulations, 2018.[i]

(b) Regulation 24(i)(d) of SEBI (Buy Back of Securities) Regulations, 2018.[ii]

(c) Regulation 5(ii) of SEBI (Buy Back of Securities) Regulations, 2018.[iii]

(d) Sections 68, 69 and 70 of the Companies Act, 2013.

Facts of the case

1. On February 26, 2020, the Board of Directors of TCIL had approved the proposal for a buy–back of up-to 2,60,86,965 equity shares (which was 6.90% of paid-up share capital as on 31.12.2019) of the face value of ₹1 each at a price of ₹57.50 per equity share.

2. On March 06, 2020 vide a letter, TCIL filed a Draft Letter of Offer (DLOF) for buy-back with SEBI.

3. Owing to the onset of Covid-19 pandemic, TCIL corresponded with SEBI seeking deferral of the buyback to the quarter ended June 2020.

4. On September 28, 2020, the request for deferral was withdrawn and an application was made seeking withdrawal of the buy-back.

Applicant’s Submissions

1. The Company being in the tourism and travel business industry was severely affected by the onset of Covid-19 pandemic in March 2020.

2. The consolidated and standalone financial figures as on June 30, 2019 and June 30, 2020 were as follows:

  As on 30.06.2019 (in INR) As on 30.06.2020 (in INR)
  Standalone Consolidated Standalone Consolidated
Earnings Before Tax 548 million 399 million (27 million) (1361 million)

The Company also had a severe cash burn of INR 1460 million during the 3-month period from March 2020 to June 2020. The fixed costs were an aggregate of INR 220 million per month.

3. As on the date of making the application the company did not have any surplus and in fact, they wanted to raise more funds either by way of equity or debt. Hence to protect the interest of the investors and to ensure going concern nature of the business, the Company made an application for withdrawal.

Issue:

Whether the mandatory obligations/compliances flowing from the statute/regulations, can be dispensed with in unforeseen situations such as the Covid–19 pandemic?

Decision of the WTM

1. As per the provisions of the Companies Act, 2013 and the Buyback Regulations, 2018 an offer for buyback has to be completed within one year from the date of passing the resolution. As per Regulation 24(i)(d) of the Buyback Regulations, 2018 the company shall not withdraw letter of offer after filing the draft with SEBI.

2. Under Regulation 28(i) of the Buy–back Regulations, 2018, the Board may relax the strict enforcement of any requirement of the Buy-back Regulations in the  interest  of  investors  and  the  securities market, if the Board is satisfied that inter alia the requirement may cause undue hardship to investors.

3. It is an established principle that law cannot compel the performance of impossible events, evidenced through the Latin maxim “lex non cogit ad impossibilia”/”impotentia excusat legem”.

4. The fundamental tests involved to ensure the applicability of the maxim are as follows:

a) Whether the event was caused beyond the control of the person?

b) Whether the event occurred without the fault of any person?

c) Whether the event resulted in impossibility?

5. In the Order, SEBI observed that all the three conditions were satisfied, and constituted a valid ground for seeking relaxation from ensuring compliance with the Buyback Regulations, and that continuing with the buyback during this substantial financial deterioration will only result in disturbing the interest of the investors.

6. Considering the uniqueness of the situation and on the subjective conditions that the submissions were true and fair, and that there were no fraudulent unfair trade practices in the matter, SEBI permitted the withdrawal of buyback in the interest of the investors and the securities market and also expressly stated in its order that this does not intend to serve as a precedent.

Regulatory issues that are to be noted from this decision of WTM
1.     The law does not compel the performance of impossibilities which are caused due to events beyond the control of the person, without any fault of his own.

2.     SEBI has rightly exercised the power given to it to relax strict compliance with the provisions of the Regulations.

[i] Regulation 28(i): The Board  may,  in  the  interest  of  investors  and  the  securities market,   relax   the   strict   enforcement   of   any   requirement   of   these regulations except the provisions incorporated from the Companies Act, if the Board is satisfied that:

(a)the requirement is procedural in nature; or

(b)the requirement may cause undue hardship to investors.

[ii] Regulation 24(i)(d): the company  shall  not  withdraw  the  offer  to  buy-back  after  the draft   letter   of   offer   is   filed   with   the   Board   or   public announcement of the offer to buy-back is made.

[iii] Regulation 5(ii): Every buy-back shall be completed within a period of one year from the date of  passing  of  the  special  resolution  at  general  meeting,  or  the resolution  passed  by the board  of  directors of  the  company,  as  the case may be.

Authored by Praveen Pandian

Applicant: KCP Limited.

Date of the Guidance: 08.02.2021.

Factual Background:

1. KCP Limited (hereinafter referred to as Applicant) is a Public Limited Company, whose equity shares are listed on National Stock Exchange and permitted to trade on BSE Ltd.

2. Jeypore Sugar Co Limited (hereinafter referred to as JSCL) (now in liquidation) was managed by the relatives of the promoters of the Applicant and were classified as belonging to the Promoter Group. JSCL has 2,78,370 (0.22%) equity shares in the Applicant Company as investment

3. JSCL went into liquidation and the Official Liquidator of JSCL in the process of realising the investments has made a proposal for sale of shares of the applicant held by JSCL and Dr. V. L. Indira Dutt, Promoter and Chairperson-cum-Managing Director (hereinafter CMD) of the Applicant Company, has agreed to purchase the shares at market price.

4. KCPL has closed the trading window from 1st January 2021 till 48 hours on declaration of financial result for the quarter ended 31st December 2020.

Guidance sought:

1. Whether the CMD of the Applicant company can acquire 2,78,370 shares from the Liquidator of JSCL at market price, during the closure of trading window as off-market sale, as JSCL is also a promoter group of the Applicant and both are considered as insiders and both of them have confirmed that there is no material information about the company and that they are making a conscious and informed trade decision.

2. Whether the compliance officer can give clearance for sale of shares during the closing period of trading window?

3. What are the other declarations/confirmations required to be obtained from the Liquidator of JSCL and promoter & CMD of the Applicant company for the sale?

Provisions Involved:

Regulation 4(1)[i] read with Clause 4(3) of Schedule B[ii] of the SEBI (Prohibition of Insider Trading) Regulations, 2015(hereinafter referred to as ‘PIT Regulations’)

Informal Guidance by SEBI:

1. Since the promoter CMD and the promoter company are ‘insiders’ in terms of Regulation 2 (1) (g) of PIT Regulations, SEBI expressed that the transaction will be construed to be an inter-se insiders (indicating no information asymmetry) and come within Regulation 4 (1) (i) of PIT Regulations so long as there is no breach of Regulation 3 of PIT Regulations.

2. Hence, it was expressed by SEBI that the promoter CMD may buy/acquire equity shares of the Applicant company from the Liquidator of JSCL subject to pre-clearance by the Applicant ‘s compliance officer under Regulation 4(1) r/w Clause 4(3) of Schedule B and Regulation 3 of the PIT Regulations.

3. With regard to the third query, SEBI while reiterating, that the compliance officer has the power to give pre-clearance for a transaction covered In Cluse 4(1)(i) of PIT, advised that compliance officer may seek declarations/confirmations that the proposed transaction is in compliance with the provisions of the Insolvency and Bankruptcy Code, 2016.

The letter of SEBI can be read at: https://www.sebi.gov.in/enforcement/informal-guidance/feb-2021/in-the-matter-of-kcp-ltd-under-sebi-prohibition-of-insider-trading-regulations-2015_49050.html

As per the Informal Guidance [Scheme] 2003 of SEBI, the guidance provided is applicable only to the Applicant, and is should not be construed as a conclusive decision or determination of any question of law or fact by SEBI and is also not an Order u/S 15T of SEBI Act, 1992.

[i] Regulation 4(1),SEBI(Prohibition of insider trading) Regulation:

4 (1) No insider shall trade in securities that are listed or proposed to be listed on a stock exchange when in possession of unpublished price sensitive information:

Provided that the insider may prove his innocence by demonstrating the circumstances including the following:

(i) the transaction is an off-market inter-se transfer between insiders who were in possession of the same unpublished price sensitive information without being in breach of regulation 3 and both parties had made a conscious and informed trade decision.

Provided further that such off-market trades shall be reported by the insiders to the company within two working days. Every company shall notify the particulars of such trades to the stock exchange on which the securities are listed within two trading days from receipt of the disclosure or from becoming aware of such information.

[ii] Clause 4(3) of Schedule B of the SEBI (Prohibition of insider trading) Regulations, 2015:

The trading window restrictions mentioned in sub-clause (1) shall not apply in respect of –

(a) transactions specified in clauses (i) to (iv) and (vi) of the proviso to sub-regulation (1) of regulation 4 and in respect of a pledge of shares for a bona fide purpose such as raising of funds, subject to pre-clearance by the compliance officer and compliance with the respective regulations made by the Board.

Authored by Padma Akila.

Date(s) of Order: 3rd February 2021

Purported contravention committed: Noticees were involved in trading by Associate Company in shares of Future Retail Limited (“FRL/Company”) on the basis of Unpublished Price Sensitive Information (“UPSI”) before the demerger decision of certain businesses of the company was made public [“Transaction”].

Person charged and who is he: Future Corporate Resources Private Limited (Resultant entity which had emerged on merger of Future Corporate Resource Limited (FCRL) [‘Noticee 1’]), Kishore Biyani (CMD and Promoter of FRL [‘Noticee 2’]), Anil Biyani (brother of Noticee 2- [‘Noticee 3’]), FCRL Employee Welfare Trust (Trust formed by the Future Group [‘Noticee 4’]), Rajesh Pathak (Company Secretary of Noticee 1 [‘Noticee 5’]), Rajkumar Pande (Chief Financial Officer of FCRL [‘Noticee 6’]), Virendra Samani (compliance officer as well as the Deputy Company Secretary of FRL during the investigation period [‘Noticee 7’]), Arpit Maheshwari (Deputy Manager of FRL [‘Noticee 8’])

Companies in which insider trading had been committed: Future Retail Limited

BACKGROUND OF THE CASE:

1. Sometime between March and April 2017, FRL started consolidating its offline home retail business (Hometown Business) with its online home retail business (FabFurnish Business) [UPSI]. The merger was finalised on 10th March 2017 and was subsequently announced on the stock exchange on 20th April 2017.

2. Pursuant to investigation by SEBI, it was found that members of the Biyani family as well as other Noticees, had purchased shares of FRL during the period of UPSI i.e., 10th March to 20th April 2017. According to SEBI, these trades were authorised by Noticee 1 & 2.

3. Subsequently it was found that following the announcement of the merger to the stock exchange, FRL’s stock prices had progressed positively.

4. Based on the above SEBI issued Show Cause Notices (SCN) to the Noticees, which lead up to all the Noticees to be penalised for violation of Sections [1]12A(d) and (e) of the SEBI Act, 1992 and [2]Regulation 4 of the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations).

CONTENTION OF THE NOTICEES:

The Noticees in response to the SCN inter alia submitted the following:

1. Information about the Transaction was “generally available”, across various media platforms and do not constitute UPSI. Information about the transaction was not price sensitive, even if it was assumed that such information was not “generally available”, because the HomeTown Business and the FabFurnish Business constituted a significantly minuscule portion of FRL’s overall business and was unlikely to contribute significantly to the price movement of the FRL shares and there were other industry-wide factors such as, demonitisation, imposition of GST, D-Mart IPO, which significantly contributed to price movement in the shares of FRL and other retail companies in India during that period.

2. Noticee 3 cannot be construed to be an “insider” just because Noticees 2 and 3 were directors of Noticee 1, as there was nothing on record to suggest any communication between Noticees 3 and 2, either in connection with FRL’s business, or with respect to decisions to trade in shares of FRL. Also, no business of FRL was ever discussed or considered at any board meetings of Noticee 1.

3. Noticee 4 was not a “person” for it to be a `connected person’ for a trust was not a legal entity such as a company, and it was not a body corporate and was merely the name of the relationship between the trustee and the beneficiary in respect of application and use of the trust property.

4. Noticee 5 and Noticee 6 were not connected with FRL in any manner as they were vested with the responsibilities of being part of the company secretarial or finance function at other promoter group companies of the Biyani family and had no association with FRL.

5. The trading window in respect of the transaction was not required to be closed since the information in question was not UPSI. However, as per in the FRL Code of Conduct, designated persons working on the transaction executed undertakings pursuant to which the trading window was deemed to be closed for such persons and such undertakings had been executed by the relevant FRL personnel. Therefore, there was no requirement for the Noticee 7 to have issued a separate notice in relation to the closure of the trading window.

FINDINGS BY THE WOLE TIME MEMBER (“WTM”):

1. In order to contend that a particular PSI was “generally available” and thus, it was not UPSI, it had to be proven that it was generally available in non-discriminatory manner, in the same form along with all material particulars, in which it had been disclosed to stock exchange as UPSI, in terms of either PIT Regulations, 2015 or LODR Regulations, 2015. Interviews or news reports based on such interviews could not be said to be containing the concrete information or disclosed on non-discriminatory basis as the said information on the news reports was very fluid and nebulous as it was bereft of specific details as to how this restructuring/merger was to ultimately be executed.

2. The scrip of FRL did not experience average daily previous day close to trading day variation either during 20 trading days prior to April 20, 2017 or 20 days afterwards. Therefore, it was clear that despite existence of claimed sector specific positive developments, the corporate announcement had its own appreciable impact on the price of the shares of FRL and thus, information was price sensitive.

3. The Noticees were “insiders” and “connected persons” as per Regulation 2(1)(g) and 2 (1)(d) of PIT Regulations 2015 based on their designations, nature of work and their direct or indirect participation in the discussions regarding PSI during the UPSI period.

4. As per clause 5 of FRL-code of conduct, relied upon by the Noticee 7, “deemed closure” became operative against only those designated persons of FRL who were working on the demerger whereas other designated persons of FRL were free to seek pre-clearance of trade, as there was no notice of actual closure of trading window. Further, clause 4 of the Code of Conduct mandates closure of trading window, in respect of all the designated officers of the company when there was UPSI in the company, irrespective of the fact that whether all the designated persons had access to such UPSI or not.

DECISION OF THE WTM

1. Noticees 1, 2, 3, 5, 6 and 8 have been prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market for one year and have been restrained from buying, selling or dealing in the securities of FRL for two years.

2. Ordered disgorgement of profits made by Noticees 1,2, 3, 4 and 8, and to be remitted to Investor Protection and Education Fund (IPEF) referred to in Section 11(5) of the SEBI Act, 1992.

3. Noticee 7 was imposed with penalty.

4. During the period of restraint, the existing holding of securities including the units of mutual funds, of the concerned Noticees, are to remain under freeze. Debarment/restraint/freeze imposed in this order will not apply to those existing holding of securities of such debarred entities, in respect of which any scheme of arrangement under [1]Section 230-232 of the Companies Act, 2013, was approved by NCLT, requiring extinguishment of such securities and/or receipt of other securities in lieu of such securities.

The Securities Appellate Tribunal (SAT) on 15th February 2021, stayed SEBI’s debarment order in this matter and directed the appellants to deposit a sum of 11 crore. We may have to await SAT’s decision on this matter.

[1] 12A requires a person not to:

(a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of SEBI Act;

(d) engage in insider trading;

(e) deal in securities while in possession of UPSI or communicate such UPSI to any other person.

[2] Regulation 4 prohibits any insider from trading in securities that are listed or proposed to be listed on a stock exchange while in possession of UPSI

[1] Sections 230- 232 talk about the tribunal’s power to, compromise or make arrangements with creditors and members, enforce compromise or arrangement and the tribunal’s powers and duties over Merger and amalgamation of companies.

Authored by Aishwarya Lakshmi VM

Date of Order: 12th February 2021.

Forum: Hon’ble Kerala Court.

Purported contravention committed:

a) Provisions applicable to issue of debentures to more than 50 persons not complied with;

b) Chartered Accountant(s) (not registered with SEBI) were appointed as the Debenture Trustee in respect of the debentures issued by an NBFC.

BACKGROUND OF THE CASE:

1. Sometime in the year 2017, in the awareness programme conducted by the regional office of SEBI in Cochin, few shareholders had complained about one BRD Securities Limited, RBI registered NBFC that it has stopped buying back it shares from its investors.

2. On enquiry by SEBI, it has come to know that the said NBFC has been making debenture issue by way of private placement from the year 2001 till 2010, and such private placement has resulted in allotment being made to more than 50 persons [under erstwhile Companies Act, 1956, issue of securities to 50 or more persons was construed to be public issue. Under Companies Act, 2013, this number is 200.]

3. SEBI had sought for certain information from the NBFC, and wasn’t satisfied with its responses, and hence sought for further information, which were not provided.

4. Also, it was noticed that two chartered accountants, were appointed as a Debenture Trustee for the debentures issued by the NBFC.

5. Since, the NBFC did not provide further information, SEBI issued show-cause notice which inter alia included

(a) non-compliance of public issue provisions for the issue of debentures to more than 50 persons;

(b) non-appointment of debenture trustee as per the SEBI (Issue and Listing of Debt Securities) Guidelines; and

(c) Appointment of unregistered Debenture Trustees thereby violating SEBI Act and SEBI (Debenture Trustee) Regulations.

The NBFC and the two chartered accountants who acted as the debenture trustees and the NBFC (in a separate writ petitions) challenged the show cause notice.

GROUNDS OF CHALLENGE OF THE SHOW CAUSE NOTICE (“SCN”):

The SCN issued by SEBI was challenged on the following grounds:

1. SEBI does not have jurisdiction in the matter since supervisory powers over NBFCs is vested with the RBI.

2. The SCN has been issued on the presumption that it has supervisory powers under Ss. 55A, 117B and 67 of Companies Act, 1956, and with the repeal of Companies Act, 1956 by Companies Act, 2013, the SCN is unsustainable.

The SCN issued in 2019, covers a period beginning in 2001 and ending in 2010, and after expiry of nine years, that pertain to events that happened 19 year back. Hence, the SCN has been issued after inordinate delay and laches.

DECISION OF THE HIGH COURT:

The Court dismissed all the three writs and

1. With respect to the delay in the issue of the SCN, the court said that the information sought for are those that are statutorily maintained by the NBFC, and that there was no prejudice caused to the company, and that if it has been incapacitated in providing the information, the same can be stated to SEBI. The court while observing that the NBFC wasn’t questioning the jurisdiction of SEBI in issuing the SCN, observed that since the matter was only in the show cause stage, it would be inappropriate of it to interfere in the proceedings.

2. The Court rejected the contention of the Petitioner that the jurisdiction over an NBFC vested only with RBI and that SEBI did not have any role to play. Categorically it was laid down that, “Even though the company is an NBFC, as far as regulation of issue of Debentures and Non-Current Bonds is concerned, it is the bounden duty of SEBI to protect the interest of the investors in securities”.

3. Since NBFCs are not specifically excluded from the purview of SEBI, they will continue to be regulated by RBI and SEBI.

4. With respect to the two Chartered Accountants who acted as debenture trustees, the court observed the existence of prima facie violation of S. 12 of SEBI Act, read with regulations pertaining to debenture trustees.

Authored by Ammu Brigit

We all recognise cosmetics as any products used on or applied to human body with the intention of personal care and beautification. The manufacture, distribution and import of cosmetics in India is governed by Drugs and Cosmetics Act 1940(DCA). The Ministry of Health and Family Welfare (MoHFW) has notified the Cosmetics Rules 2020 (“Rules”) which apply to the import, manufacture for sale or for distribution of cosmetics.

Summary of the Rules

The Rules are divided into nine chapter, thirteen schedules and appendixes containing the formats of the forms required for the registration under DCA. The Rules determines the licensing authorities with respect to cosmetics and also provides for the constitution of central cosmetics laboratory. The Rules also comprehensively sets out the procedure for the registration for the import of cosmetics, manufacture of cosmetics for sale and distribution, permission of sale or manufacture of a new cosmetic in India, standards in relation to labelling, packing of cosmetics for the sale and distribution of cosmetics, procedure for sampling of tests of analysis, seizure and report and approval of laboratory for carrying out test in cosmetics and raw materials.

Highlights of the Rules.

Licensing Authority

The Drug Controller General of India (DGCI) is the central licensing authority responsible for the import of all categories of cosmetics and also the coordination with state authorities. The state drug controller of the respective state shall be the state licensing authority and shall be responsible for manufacture for sale or distribution, sale, stock, exhibit or offer for sale or distribution of all categories of cosmetics and for granting of approval of to the laboratory for carrying out tests on cosmetics and their raw materials.

Constitution of Central Cosmetic Laboratory

The Rules provides for the constitution of Central Cosmetic Laboratory for analysing and testing of samples sent. The Rules also give power to the Central Government to designate or notify any laboratory which is duly accredited by National Accreditation Body for Testing and Calibration Laboratories as a central cosmetic laboratory for carrying out tests and evaluation of cosmetics.

Import, Manufacture for Sale or for Distribution

A cosmetic product can be manufactured or imported to India only after the obtaining the license from the respective licensing authority with the required document and paying the required fees. For the manufacturing of cosmetic products, a license has to be sought from the respective state licensing authority and for import of cosmetics to India, the licensing authority is DGCI.

Labelling and Packing Standards

The Rules prohibits the selling or distribution of any cosmetic of Indian origin unless it is manufactured by a licensed manufacturer and labelled and packed according to the conditions given under the Rules and also false and misleading claims on cosmetic products. The Rules principally lays out the manner of labelling and packaging and also the standards if cosmetics imported.

Conclusion

Effective from 15th December 2020, the intention of the new Rules is to revise and codify separately the rules pertaining to the import, manufacture for sale or for distribution of cosmetics in India and have accordingly amended the provisions in Drugs and Cosmetics Rules 1945 (DCR) to omit cosmetics from the purview of DCR.

Authored Padma Akila

The Ministry of Commerce and Industry on February 09, 2021 has published the Draft Patents (Amendment) Rules, 2021 to amend the Patents Rules, 2003, for public opinion.

The draft rules seek to place educational institutions established by an act of parliament or state legislature, government owned educational institutions and government aided educational institutions [those that receive funding from the government of Rs. 25 Lakhs or more; or receive government funding to an extent of 75% or more of its total expenditure], on par with natural persons, small entities and start-ups with respect to matters related to reduced fees and for seeking expedited prosecution.

Presently natural persons, small entity and start-up alone are eligible for concessional fees. An MSME would come within the meaning of a small entity.

Documentary proof in Form 28 to be filed: –

Just as a small entity and startups, the eligible educational institutions must submit their documentary evidence in Form 28.

NAAC and Patents

With the National Assessment and Accreditation Council (“NAAC”) giving 25% weightage to Universities for “Research, Innovation & Extension” activities, and 11% weightage for such activities to affiliated colleges, the reduced fees would encourage government owned, and government aided educational institutions to increase their patent filing and foster further invention.

PS: The Draft Amendment Rules are open to objections/suggestions for a period of 30 days from the date of the notification.

Authored by Praveen & Adit

Import Export Code (IEC) Import Export Code (IEC) is mandatory for export/import from/to India.

DGFT issues Import Export Code in electronic form (e-IEC).

Amendment: 1. An IEC holder has to ensure that details in its IEC are updated / confirmed (if there are no changes) electronically every year, between April and June.

Failure to update / confirm the details results in deactivation of IEC and can be reactivated only upon successful updation of the same.

2.  An IEC may also be flagged for scrutiny.  IEC holders are required to ensure that any risk flagged by the system is addressed within the stipulated time, failing which the IEC shall be de-activated.

Timeline: Every year between 1st April and 30th June.
Date of Notification: 12th February 2021

Authored by Praveen & Adit

The Ministry of Corporate Affairs, vide its notification dated 19th February 2021, has specified the following classes of companies which shall not be considered as listed companies for the purpose of Companies Act, 2013.

(a) The public companies which have not listed their equity shares on a recognized stock exchange but have listed their :-

(i) non-convertible debt securities issued on private placement basis in terms of SEBI (issue and listing of debt securities) regulation, 2008; or

(ii) non-convertible redeemable preference shares issued on private placement basis in terms of SEBI (issue and Listing of Non- convertible Redeemable Preference Shares) Regulations, 2013; or

(iii) Both categories of (i) and (ii) above

(b) The private companies which has listed their non-convertible debt securities on private placement basis on recognised stock exchange in terms of SEBI (Issue and Listing Of Debt Securities) Regulation, 2008;

(c) Public companies which have not listed their equity shares on recognised stock exchange but whose equity shares are listed on a stock exchange in a jurisdiction as specified in sub-section (3) of section 23 of the Act.

Effect of this amendment:

The Companies Act, 2013 make certain provisions specifically applicable to “Listed Companies”.

Prior to this amendment, every Company which had its securities other than equity shares listed on any stock exchange was also considered as a “Listed Company” for the purpose of Companies Act, 2013. This meant that these companies, even though not equity listed entities, were still required to comply with those provisions which are made applicable to “Listed Companies”.

Hence after this amendment, the classes of companies specified above will not be required to comply with such provisions which are specifically applicable to “Listed Companies”

Authored by Praveen & Adit

(A)  REQUIREMENT OF MANDATORY CONVERSION OF ONE PERSON COMPANY (“OPC”) TO PRIVATE COMPANY DONE AWAY WITH

Background of One Person Company (“OPC”):

Under erstwhile Companies Act, 1956, to incorporate a private limited company, at least 2 shareholders and 2 directors are required. The Irani Committee, which was set up by the Ministry of Corporate Affairs to advise the Government on the new Company law, identified the need to provide a simpler form of entity for entrepreneurs, which will not necessarily be required to be formed with association of persons. With this background, the concept of One Person Company was introduced under Companies Act, 2013, wherein, unlike a private limited company, which requires at least 2 members and 2 directors, a OPC to be incorporated as a limited Company required only one member and one director.

However, the OPC was required to mandatorily raise the number of shareholders and directors to at least two and thereby converting it to a private company, in case, the paid-up capital or turnover of the OPC crossed Rs. 50 lakhs or Rs. 2 Crores respectively.

Removal of the requirement of Mandatory conversion:

The Government felt that this requirement of compulsory conversion, placed restrictions on the start-ups and innovators and thereby defeating the purpose of OPC. Hence in order to incentivise the incorporation of OPC, the Government, in its Union Budget 2021, decided to remove this requirement of compulsory conversion of OPC.

(B) NRI’S ALLOWED TO INCORPORATE OPC:

Only Indian Citizens residing in India were allowed to incorporate a OPC. However the Government, in its Union Budget 2021, had announced that the Non-Resident Indians (NRIs) will also be allowed to incorporate a OPC.

(C) Criteria of a minimum number of days in India, to be considered as resident in India for the purpose of OPC, has been relaxed from a minimum of 182 days to a minimum of 120 days.

All the aforementioned amendments are effective from 1st April 2021.

Authored by Praveen & Adit

Brief background:

The Ministry of Corporate Affairs (‘MCA”), had in Companies Act, 2013 (“ the Act”), recognised that certain companies below a specified threshold of paid-up capital and turnover, be considered as small companies and exempted or provided relaxation to such small companies from certain requirements under the Act.

The threshold which was provided earlier was that any private limited company (other than a Company which is a holding or a subsidiary company, section 8 company or a company or boby corporate governed by any special act) which has a paid-up capital of Rs. 50 lacs or less and turnover of Rs. 2 Crores or less will be considered as a small company.

Enhanced thresholds:

However the Government has now increased these threshold limits. Now, any private limited company (other than a Company which is a holding or a subsidiary company, section 8 company or a company or body corporate governed by any special act) which has a paid-up capital of Rs. 2 Crores or less and turnover of Rs. 20 Crores or less will be considered as a small company.

Hence with these enhanced threshold limits, many private limited companies will come within the ambit of a small company and can enjoy the benefits/relaxations available to small companies under the Act.

BENEFITS/RELAXATIONS AVAILABLE TO SMALL COMPANIES:

S. No. Category Compliance requirements for Companies other than Small Companies Benefits for small companies
(1) BOARD RELATED
(a) Board Meetings At least 4 board meetings are required to be held in a calendar year ·       Small Companies may hold only 2 board meetings in a calendar year i.e. one Board Meeting in each half of the calendar year with a minimum gap of ninety days between the two meetings.
(2) DISCLOSURES RELATED
(a) Disclosures in Board’s report Elaborate disclosures are required to be made in the Board’s report Abridged form of board’s report with lesser disclosures has been specified for small companies.
(b) Cash Flow Statement Cash flow statement is required to be prepared as part of annual financial statements The small companies are exempted from drawing up a cash flow statement.
(3) CERTIFICATION RELATED
  Professional’s certification on returns to be filed with RoC The returns required to be filed with the Registrar of Companies are required to be certified by a practising professional The returns are not required to be certified by a practising professional
(4) PENALTIES RELATED
  Lesser penalties for Small Companies under the Companies Act, 2013 The Companies Act, 2013 provides for penalty on a Company or an officer in default for non-compliance of any of the provisions of Companies Act, 2013. A small company or its officer in default, in case of non-compliance, will be liable to a penalty of less than one half of the penalty specified in respective sections under the Act.

 

However, the penalty is capped at Rs. 2 lakhs for the small company and Rs. 1 lakh for an officer in default.

(5) AUDITOR’S REPORT RELATED
  Reporting on internal financial controls with reference to financial statements Auditors of Companies are, in its audit report, required to report on internal financial controls with reference to financial statements and the operating effectiveness of such controls. The auditors of small companies are not required to report on the internal financial controls.

The Ministry of Corporate Affairs, vide its notification dated 19th February 2021, has specified the following classes of companies which shall not be considered as listed companies for the purpose of Companies Act, 2013.

(a) The public companies which have not listed their equity shares on a recognized stock exchange but have listed their:

(i) non-convertible debt securities issued on private placement basis in terms of SEBI (issue and listing of debt securities) regulation, 2008; or

(ii) non-convertible redeemable preference shares issued on private placement basis in terms of SEBI (issue and Listing of Non- convertible Redeemable Preference Shares) Regulations, 2013; or

(iii) Both categories of (i) and (ii) above

(b) The private companies which has listed their non-convertible debt securities on private placement basis on recognised stock exchange in terms of SEBI ( Issue and Listing Of Debt Securities) Regulation, 2008;

(c) Public companies which have not listed their equity shares on recognised stock exchange but whose equity shares are listed on a stock exchange in a jurisdiction as specified in sub-section (3) of section 23 of the Act.

Effect of this amendment:

The Companies Act, 2013 make certain provisions specifically applicable to “Listed Companies”.

Prior to this amendment, every Company which had its securities other than equity shares listed on any stock exchange was also considered as a “Listed Company” for the purpose of Companies Act, 2013. This meant that these companies, even though not equity listed entities, were still required to comply with those provisions which are made applicable to “Listed Companies”.

Hence after this amendment, the classes of companies specified above will not be required to comply with such provisions which are specifically applicable to “Listed Companies”

Authored by Praveen & Adit

(A)  REQUIREMENT OF MANDATORY CONVERSION OF ONE PERSON COMPANY (“OPC”) TO PRIVATE COMPANY DONE AWAY WITH

Background of One Person Company (“OPC”):

Under erstwhile Companies Act, 1956, to incorporate a private limited company, at least 2 shareholders and 2 directors are required. The Irani Committee, which was set up by the Ministry of Corporate Affairs to advise the Government on the new Company law, identified the need to provide a simpler form of entity for entrepreneurs, which will not necessarily be required to be formed with association of persons. With this background, the concept of One Person Company was introduced under Companies Act, 2013, wherein, unlike a private limited company, which requires at least 2 members and 2 directors, a OPC to be incorporated as a limited Company required only one member and one director.

However, the OPC was required to mandatorily raise the number of shareholders and directors to at least two and thereby converting it to a private company, in case, the paid-up capital or turnover of the OPC crossed Rs. 50 lakhs or Rs. 2 Crores respectively.

Removal of the requirement of Mandatory conversion:

The Government felt that this requirement of compulsory conversion, placed restrictions on the start-ups and innovators and thereby defeating the purpose of OPC. Hence in order to incentivise the incorporation of OPC, the Government, in its Union Budget 2021, decided to remove this requirement of compulsory conversion of OPC.

(B) NRI’S ALLOWED TO INCORPORATE OPC:

Only Indian Citizens residing in India were allowed to incorporate a OPC. However the Government, in its Union Budget 2021, had announced that the Non-Resident Indians (NRIs) will also be allowed to incorporate a OPC.

(C) Criteria of a minimum number of days in India, to be considered as resident in India for the purpose of OPC, has been relaxed from a minimum of 182 days to a minimum of 120 days.

All the aforementioned amendments are effective from 1st April 2021.

Authored by Praveen & Adit

Brief background:

The Ministry of Corporate Affairs (‘MCA”), had in Companies Act, 2013 (“ the Act”), recognised that certain companies below a specified threshold of paid-up capital and turnover, be considered as small companies and exempted or provided relaxation to such small companies from certain requirements under the Act.

The threshold which was provided earlier was that any private limited company (other than a Company which is a holding or a subsidiary company, section 8 company or a company or boby corporate governed by any special act) which has a paid-up capital of Rs. 50 lacs or less and turnover of Rs. 2 Crores or less will be considered as a small company.

Enhanced thresholds:

However the Government has now increased these threshold limits. Now, any private limited company (other than a Company which is a holding or a subsidiary company, section 8 company or a company or boby corporate governed by any special act) which has a paid-up capital of Rs. 2 Crores or less and turnover of Rs. 20 Crores or less will be considered as a small company.

Hence with these enhanced threshold limits, many private limited companies will come within the ambit of a small company and can enjoy the benefits/relaxations available to small companies under the Act.

BENEFITS/RELAXATIONS AVAILABLE TO SMALL COMPANIES:

S. No. Category Compliance requirements for Companies other than Small Companies Benefits for small companies
(1) BOARD RELATED
(a) Board Meetings At least 4 board meetings are required to be held in a calendar year ·       Small Companies may hold only 2 board meetings in a calendar year i.e. one Board Meeting in each half of the calendar year with a minimum gap of ninety days between the two meetings.
(2) DISCLOSURES RELATED
(a) Disclosures in Board’s report Elaborate disclosures are required to be made in the Board’s report Abridged form of board’s report with lesser disclosures has been specified for small companies.
(b) Cash Flow Statement Cash flow statement is required to be prepared as part of annual financial statements The small companies are exempted from drawing up a cash flow statement.
(3) CERTIFICATION RELATED
Professional’s certification on returns to be filed with RoC The returns required to be filed with the Registrar of Companies are required to be certified by a practising professional The returns are not required to be certified by a practising professional
(4) PENALTIES RELATED
Lesser penalties for Small Companies under the Companies Act, 2013 The Companies Act, 2013 provides for penalty on a Company or an officer in default for non-compliance of any of the provisions of Companies Act, 2013. A small company or its officer in default, in case of non-compliance, will be liable to a penalty of less than one half of the penalty specified in respective sections under the Act.

 

However, the penalty is capped at Rs. 2 lakhs for the small company and Rs. 1 lakh for an officer in default.

(5) AUDITOR’S REPORT RELATED
Reporting on internal financial controls with reference to financial statements Auditors of Companies are, in its audit report, required to report on internal financial controls with reference to financial statements and the operating effectiveness of such controls. The auditors of small companies are not required to report on the internal financial controls.

Authored by Lakshmi Rengarajan

SEBI had vide circular SEBI/HO/CFD/DIL2/CIR/P/2020/78 dated 06th May 2020 had provided relaxations pertaining to opening of rights issue under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 till 31st December 2020.

In this regard SEBI has vide circular SEBI/HO/CFD/DIL1/CIR/P/20 dated January 19, 2021 further provided extension till 31st March 2021 with regard to use of alternate non-cash mechanism to ASBA facility to accept applications form the shareholders in relation to rights issue. However while opting for alternate mechanism the issuer and the lead manager shall ensure the following;

(a) The mechanism(s) shall only be an additional option and not a replacement of the existing process As far as possible, attempts will be made to adhere to the existing prescribed framework.

(b) The mechanism(s) shall be transparent, robust and have adequate checks and balances. It should aim at facilitating subscription in an efficient manner without imposing any additional costs on investors. The issuer along with lead manager(s), and registrar shall satisfy themselves about the transparency, fairness and integrity of such mechanism.

(c) An FAQ, online dedicated investor helpdesk, and helpline shall be created by the issuer company along with lead manager(s) to guide investors in gaining familiarity with the application process and resolve difficulties faced by investors on priority basis.

(d) The issuer along with lead manager(s), registrar, and other recognized intermediaries (as incorporated in the mechanism) shall be responsible for all investor complaints.

Authored by Lakshmi Rengarajan

SEBI vide the circular SEBI/HO/CFD/CMD 2/CIR/P/2021/11 dated 15th January 2021, has extended the relaxations provided to listed companies in relation to sending of annual report in physical form and appointment of proxies in relation to Annual General Meeting(“AGM”) till 31st December 2021.

Pursuant to Covid and the relaxations provided by the Ministry of Corporate Affairs for conduct of general meetings, SEBI had issued a circular SEBI/HO/CFD/CMD1/CIR/P/2020/79 dated 12th May 2020 providing various relaxations to listed companies for the conduct of AGM till 31st December 2021.

In this regard the current circular provides a further extension till 31st December 2021 with respect to the following items of the May 2020 circular in relation to AGM conducted only through electronic mode;

1. Listed companies are dispensed from sending hard copies of annual report in relation to their shareholders,

2. Listed Companies are dispensed from sending proxy form to the share/security holders as the appointment of proxy will not be applicable when the AGM is held only through electronic mode.

Authored by Padma Akila

In our earlier article, we had written about the Consultation Paper of SEBI proposing disclosure requirements about the approved resolution plans in respect of listed companies that are admitted for corporate insolvency resolution process under the Insolvency & Bankruptcy Code, 2016 and also proposing certain minimum public shareholding in such companies.

Changes related to approved Resolution Plan

SEBI on 8th January 2021 has brought in amendments in SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 [“LODR”], bringing in disclosure requirements which are as under:

Companies that have a resolution plan approved by NCLT would have to disclose the same as a material event under Regulation 30 of LODR. The disclosure would have to be made within 24 hours of its approval as per Regulation 30(6), and in case of delay the same would have to be explained while making the disclosure.

The information to be disclosed as a material event to the stock exchanges is the specific features and details of the resolution plan as approved by NCLT, not involving commercial secrets, including details such as:

(i) Pre and Post net-worth of the company;

(ii) Details of assets of the company post CIRP;

(iii) Details of securities continuing to be imposed on the companies’ assets;

(iv) Other material liabilities imposed on the company;

(v) Detailed pre and post shareholding pattern assuming 100% conversion of convertible securities;

(vi) Details of funds infused in the company, creditors paid-off;

(vii) Additional liability on the incoming investors due to the transaction, source of such funding etc.;

(viii) Impact on the investor revised P/E, RONW ratios etc.;

(ix) Names of the new promoters, key managerial persons(s), if any and their past experience in the business or employment. In cases where promoters are companies, history of such companies and names of natural persons in control;

(x) Brief description of business strategy.

Disclosure related to Minimum Public Shareholding

While in the Consultation Paper, there were certain proposals on Minimum Public Shareholding in companies that have a new promoter coming in consequent to the resolution plan, SEBI by the amendments made on 8th January 2021 has limited it to requiring those companies to make disclosure as a material event, the following:

(i) Proposed steps to be taken by the incoming investor/acquirer for achieving the MPS;

(ii) Quarterly disclosure of the status of achieving the MPS; and

(iii) The details as to the delisting plans, if any approved in the resolution plan.

Authored by Aishwarya Lakshmi VM

ApplicantManaksia Aluminium Company Limited.

Date of the guidance19.09.2020

Factual Background:

(i) The Applicant is a listed entity with a board composition of 8 directors of which there is 1 Managing Director (promoter) and 1 Executive Director (non-promoter). All the others are Non-Executive Directors. The Managing Director (hereinafter, MD) and the Executive Director (hereinafter, ED) are paid remuneration as per Schedule V of the Companies Act, 2013. The remuneration of the sole promoter executive director is within the ceiling of Rs. 5 crores or 2.5% of the net profit (whichever is higher) being the upper limit as per Regulation 17(6)(e)(i) of the SEBI (LODR) Regulations, 2015.

(ii) The Applicant proposes to induct an additional ED from the Promoter group in its Board, who will also be paid remuneration as per Schedule V of the Companies Act, 2013.

(iii) The Applicant taking a view that the limits of 5% of net profits under in clause (ii) of Regulation 17(6)(e), if the company has more than one promoter executive director would become applicable only if pays “fees or compensation” and not “customary salary”, sought guidance of SEBI, whether it would still be required to take approval of the shareholders by way of special resolution if the salary of the two promoter executive directors would be beyond 5% of its net profits.

Guidance sought:

(i) Whether Regulation 17(6)(e) will be applicable to the Applicant if another Executive director from the Promoter group is appointed by passing an Ordinary Resolution and receiving only customary monthly salary (and not any fees or compensation) in adherence with Schedule V of Companies Act, 2013?

(ii) Is upper limit of INR 5 Crore mentioned in clause (i) of Regulation 17(6)(e) also applicable to remuneration paid to more than one ED as per Clause (ii) of Regulation 17(6)(e)?

(iii) Whether company is required to pass a special resolution under Clause (ii) of Regulation 17(6)(e) of LODR Regulations for appointment of one or more executive promoter director if the aggregate remuneration payable to all executive promoter director exceeds 5% of the net profits or an absolute limit of INR 5 crore.

Provisions Involved

Regulations 17(6)(e) of SEBI (Listing Obligation and Disclosure Requirement) Regulations, 2015. [i]

Informal Guidance by SEBI

(i) Relying on the definition in Section 2(78) of Companies Act, 2013 SEBI provided that the term ‘remuneration’ being an all-inclusive term, unless otherwise expressly excluded, would include salary, fees, commission, stock option etc. or any money or its equivalent in whatever manner given to any person for the services rendered.

(ii) If the remuneration exceeds the limits of 5% of the net profits of the Applicant, even though as per the Companies Act, 2013 only an Ordinary Resolution is required, the Applicant should also pass a special resolution to comply with Regulation 17(6)(e) to comply with the SEBI (LODR) Regulations, 2015, which is valid only until the expiry of the term of such directors.

(iii) Unlike clause (i) of the said Regulation which has a ceiling limit of either INR 5 Crores or 2.5% of the net profits, whichever is higher, clause (ii) has only a doubled ceiling limit of 5% of the net profits. The limit of INR 5 Crores is not applicable to Clause (ii).

The letter of SEBI can be read at: https://www.sebi.gov.in/sebi_data/commondocs/nov-2020/SEBI%20IG%20letter%20MACL_p.pdf

As per the Informal Guidance [Scheme] 2003 of SEBI, the guidance provided is applicable only to the Applicant, and is should not be construed as a conclusive decision or determination of any question of law or fact by SEBI, and is also not an Order u/S 15T of SEBI Act, 1992.

[i] Regulation 17(6)(e), SEBI (LODR) Regulations, 2015: The fees or compensation payable to executive directors who are promoters or members of the promoter group, shall be subject to the approval of the shareholders by special resolution in general meeting, if –

(i) the annual remuneration payable to such executive director exceeds rupees 5 crore or 2.5 per cent of the net profits of the listed entity, whichever is higher; or

(ii) where there is more than one such director, the aggregate annual remuneration to such directors exceeds 5 per cent of the net profits of the listed entity: Provided that  the  approval  of  the  shareholders  under  this  provision  shall  be  valid  only till the expiry of the term of such director.

Authored by Padma Akila

Date(s) of Order: 11th December 2020

Purported contravention committed: Promoters of the Company sold more than 25000 shares and failed to make requisite disclosures in terms of regulation 13(4A) of SEBI (PIT) Regulations,1992 r/w 13(5) of SEBI (PIT) Regulations,1992 r/w Regulation 12 of the SEBI (PIT) Regulations, 2015.

Persons charged and who are they: Promoters of the company namely; Smita D Gandhi (Noticee 1), Yogesh Shah (Noticee 2) and Yogeshbhai Shah HUF (Noticee 3)

Company which did not fulfil the disclosure requirements: Global Securities Limited.

BACKGROUND OF THE CASE:

1. Pursuant to an investigation by SEBI in the scrip of Global Securities Limited, to examine the matters relating to preferential allotment process and utilization of preferential issue proceeds, disclosure requirements in terms of SEBI (Prohibition of Insider Trading) Regulations, 1992 (“PIT Regulations, 1992”) and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“SAST Regulations, 2011”) and Listing Agreement by the company during the period from May 1, 2010 to April 30, 2014, it was observed that the Noticees had sold more than 25000 shares and failed to make requisite disclosures in terms of [1]Reg 13(4A) of PIT Regulations, 1992 r/w 13(5) of PIT Regulations,1992 r/w [2]Reg 12 of PIT Regulations, 2015.

2. The Noticees neither replied to the SCN issued to them nor did they attend the personal hearing on the scheduled date, till the passing of the order.

3. The scrip was listed only on BSE and was suspended for trading with effect from January 07, 2015 due to non-payment of Annual Listing Fees

FINDINGS BY THE ADJUCATING OFFICER (“AO”):

1. The AO, on perusal of the shareholding pattern of the promoters available on the BSE website during the investigation period, observed that the names of the Noticees did not appear in the shareholding pattern from September 2012 quarter onwards. Further, it was observed that there was a reduction in the shareholding of the Noticees by more than 25000 shares during this quarter.

2. The AO further identified that, vide email dated December 20, 2019, BSE confirmed that the exchange was not in receipt of any disclosures under SAST Regulations and PIT Regulations from the Noticees in September 2012 quarter. Therefore, the AO concluded that the Noticees did not make the required disclosures for the aforesaid changes in their shareholding.

3. The AO observed that the Noticees had simultaneously failed to file quarterly shareholding pattern for June 2013 and September 2013 quarters as required under Clause 35 of the Listing Agreement r/w [1]Reg 103 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and [2]section 21 of the SCRA, 1956.

4. The AO found it pertinent to draw attention to the matter of Coimbatore Flavors & Fragrances Ltd. vs SEBI (Appeal No. 209 of 2014 order dated August 11, 2014), wherein the Hon’ble SAT observed that “Undoubtedly, the purpose of these disclosures is to bring about more transparency in the affairs of the companies. True and timely disclosures by a company or its promoters are very essential from two angles. Firstly; investors can take a more informed decision to invest or not to invest in a particular scrip secondly; the Regulator can properly monitor the transactions in the capital market to effectively regulate the same.”

5. Referring to the judgment in the matter of SEBI vs. Shriram Ram Mutual Fund (2006 SCL 216(SC)), wherein Hon’ble Supreme Court held that; “In our opinion, mens rea is not an essential ingredient for contravention of the provisions of a civil act. In our view, the penalty is attracted as soon as contravention of the statutory obligations as contemplated by the Act is established and, therefore, the intention of the parties committing such violation becomes immaterial. In other words, the breach of a civil obligation which attracts penalty under the provisions of an Act would immediately attract the levy of penalty irrespective of the fact whether the contravention was made by the defaulter with any guilty intention or not. We also further held that unless the language of the statute indicates the need to establish the presence of mens rea, it is wholly unnecessary to ascertain whether such a violation was intentional or not”, the AO concluded that the Noticees had violated abovementioned provisions and were fit to be imposed with a monetary penalty.

[1] Continual disclosure

13.(4A) Any person who is a promoter or part of promoter group of a listed company, shall disclose to the company and the stock exchange where the securities are listed in Form D, the total number of shares or voting rights held and change in shareholding or voting rights, if there has been a change in such holdings of such person from the last disclosure made under Listing Agreement or under sub-regulation (2A) or under this sub-regulation, and the change exceeds Rs. 5 lakhs in value or 25,000 shares or 1% of total shareholding or voting rights, whichever is lower.

(5) The disclosure mentioned in sub-regulations [(3), (4) and (4A)] shall be made within [two] working days of:

(a) the receipts of intimation of allotment of shares, or

(b) the acquisition or sale of shares or voting rights, as the case may be.

[2] Reg 12 is the Repeal and savings regulation of PIT Regulation 1992.

[1]103 (1) On and from the commencement of these regulations, all circulars stipulating or modifying the provisions of the listing agreements including those specified in Schedule X, shall stand rescinded.

(2) Notwithstanding such rescission, anything done or any  action taken or purported to have been  done  or  taken  including  any  enquiry  or investigation  commenced  or  show  cause notice  issued  in  respect  of  the circulars  specified  in sub-regulation  (1) or  the Listing Agreements, entered into between stock exchange(s) and listed entity, in force prior to the commencement of these regulations, shall be deemed to have been done or taken under the corresponding provisions of these regulations.

[2] 21. Where securities are listed on the application of any person in any recognised stock exchange, such person shall comply with the conditions of the listing agreement with that stock exchange.

Authored by Aishwarya Lakshmi VM

In the matter of: CNBC Awaaz ‘Stock 20-20’ Show co-hosted by Mr. Hemant Ghai

Date of the interim order: 13.01.2021

Provisions invoked

(a) Sections 11(1),[i] 11(4),[ii] and 11D[iii] of the Securities Exchange Board of India Act, 1992.

(b) Regulation 3(c), 3(d)[iv] and 4(1)[v] of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003.

Facts of the case:

1. Hemant Ghai was the co-host of ‘Stock 20-20’ aired in CNBC Awaaz from 7:20 A.M to 7:50 A.M. The show gave buy and sell recommendations for intra-day trading in stocks.

2. The trading account of the wife and mother of Mr. Hemant Ghai viz., Ms. Jaya Hemant Ghai and Ms. Shyam Mohini Ghai were preliminarily examined by SEBI and it was found that between January 1, 2019 to May 31, 2020 the trading accounts had made prima facie earnings of INR Two Crore and Ninety Five Lakhs merely through the BTST (Buy Today Sell Tomorrow) trading pattern.

3. As per investigation, the scrips traded in these accounts were the ones recommended by Mr. Hemant Ghai in his show. The investigation concluded that the modus operandi was to acquire the shares on the previous day through the trading accounts of Ms. Jaya Hemant Ghai and Ms. Shyam Mohini Ghai, and they were recommended Mr. Hemant Ghai in his show the following day. On the day of recommendation the scrips purchased the previous day were sold in the market at a profit.

4. SEBI preliminarily examined the issue and found a connection between the persons by relying on the KYC details submitted to the Registrar and Share Transfer Agents and Banks. Also details such as number of calls made to the equity analyst and the duration of such calls were used to corroborate the events and establish a preponderance of probabilities which may possibly involve the three persons.

Issues considered for preliminary examination:

1. Whether there is a repeated trading pattern in the previous day buying and post-recommendation selling in the trading accounts of Ms. Jaya Ghai and Ms. Shyam Mohini Ghai based on the recommendations of Mr. Hemant Ghai in the show he hosts?

2. If yes, whether the trading amounts to a ‘prima facie scheme, device or artifice’ in violation of the SEBI Act and Regulations?

3. Whether Mr. Hemant Ghai, his wife and mother are liable for proceeds of such prima facie violations?

4. If yes, whether urgent directions are to be issued?

Interim Order of the AO

1. SEBI relied on several cases of the Hon’ble Apex Court that reiterate the importance of a level playing field to keep the sanctity of the securities market intact and also the need for using circumstantial evidence to establish a plausible scheme that may have been adopted by the concerned persons.

2. SEBI passed an ex-parte interim order in the matter by deriving its power from Sections 11(1), 11(4) and 11D of the SEBI Act, 1992 for violation of Section 12A of the SEBI Act, 1992 and Regulations 3 and 4 of the SEBI (PFUTP) Regulations, 2003.

3. The directions issued by SEBI in the ex-parte ad interim order are as follows:

(i) The three persons were restrained from buying, selling or dealing in securities until further orders.

(ii) Hemant Ghai was ceased and desisted from undertaking, directly or indirectly, any activity related to giving investment advice, sell or buy recommendations, publishing of research reports etc., related to the securities market.

(iii) The bank account was impounded and the proceeds to be transferred to a joint escrow account.

(iv) Hemant Ghai, Ms. Jaya Hemant Ghai and Ms. Shyam Mohini Ghai were directed to provide a full inventory of all assets held in their name, jointly or severally, whether movable or immovable, or any interest or investment or charge on any of such assets, including details of all bank accounts, demat accounts and mutual fund investments.

(v) They were directed not to dispose of or alienate any of their assets.

(vi) A copy of the said order was sent to the Agent, the channel concerned and the News Broadcasting Standards Authority.

Regulatory issues that are to be noted from this decision of AO
1.     SEBI views violation of market sanctity in a very strict manner and any kind of scheme or device or artifice that may result in fraudulent and unfair trade practice is prohibited.

2.     SEBI has the power to impound and retain fraudulent proceeds even pending investigation and after completion of investigation or enquiry.

[i] 11. Functions of the Board: (1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit.

[ii] 11(4): This clause provides the list of measures that can be taken by SEBI, either pending investigation or on completion of investigation or inquiry. These include suspending the trading account, restraining the persons from accessing securities market, impounding and retaining proceeds pending investigation etc.

[iii] 11D. Cease and Desist Proceedings: If the Board finds, after causing an inquiry to be made, that any person has violated, or is likely to violate, any provisions of this Act, or any rules or regulations made there under, it may pass an order requiring such person to cease and desist from committing or causing such violation.

[iv] 3. Prohibition of certain dealings in securities

(c)    employ any device, scheme or artifice to defraud in connection with dealing in or  issue of securities  which  are  listed  or  proposed  to  be  listed  on  a  recognized  stock exchange;

(d)  engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made thereunder

[v] 4. Prohibition of manipulative, fraudulent and unfair trade practices

(1)  Without prejudice to the provisions of regulation 3, no person shall indulge in a manipulative, fraudulent or an unfair trade practice in securities markets.

 

Authored by Padma Akila

The Madras High Court on 7th December 2020 passed an interim injunction order in favour of Naidu Hall Family Store, the Plaintiff, restraining the Defendant from infringing the mark “Naidu Hall” belonging to the Plaintiff. The Court opined that the Plaintiff is a well-known and reputed partnership firm, which was founded in the year 1939, primarily dealing with textiles and has established goodwill and reputation in the said trade. Further, they have also obtained registration of the trademark for ‘Naidu Hall’ which has been registered in Class 24 in Trademark No.2793271 and in Class 25 in Trademark No.2582196. The Plaintiff has also registered the domain name vnhnaiduhall.com which contains the trademark ‘Naidu Hall’. The order stated that the Defendant appeared to be in the same trade and also using the same mark ‘Naidu Hall’ with a slight addition namely, ‘A Moham Venture’.

The counsel for the Plaintiff contended that there was every possibility of the general public being misled to believe that the Defendant could be a branch of the Plaintiff and/or that the Defendant’s products are the products of the Plaintiff as the Defendant also happened to be in the same line of business.

The Court stated that a Caveat had been entered by the Defendant and the counsel for the Caveator was served with all the relevant papers. Thereafter, when the matter was again taken up for hearing, the counsel who appeared on behalf of the Defendant / Caveator, stated that the Defendant had not come forward to give any instructions. Taking this into account the Court held that the Defendant was deliberately trying to take advantage of the Court proceedings and that the intentions of the Defendant appeared to be malafide to defeat the rightful claims of the Plaintiff.

The Court further stated that in the registration of the mark, the Plaintiff has made out a prima facie case and that the Defendant has adopted surreptitious measures to somehow or the other to deny the grant of interim order. It was further held that the balance of convenience is in favour of the Plaintiff and that the Plaintiff would suffer immense loss, if the Defendant is permitted to continue with their business under the offending trademark. The Court was of the opinion that the Defendant has adopted the very same mark as that of the Plaintiff. In view of these facts, the court held that a prima facie case has been made out by the Plaintiff and that the balance of convenience was also certainly in favour of the plaintiff.

Authored by Padma Akila

On 18th October 2019, the Department for Promotion of Industry and Internal Trade (DPIIT) of the Ministry of Commerce, had, wide a notification, published the draft amendment to Design Rules, 2001, inviting objections and suggestions from the public. In furtherance to the same, the Central Government, vide notification dated 25th January 2021, notified the Designs (Amendment) Rules, 2021 (“New Rules”). Some of the key highlights of the said amendment are as under:-

1. A new definition of the word “Startup”[1] is included under the New Rules under clause (eb) as below:

‘(eb) “startup” means-

‘(a) an entity in India recognised as a startup by the competent authority under Startup India initiative; and

(b) in case of a foreign entity, an entity fulfilling the criteria for turnover and period of incorporation or registration as per Startup India Initiative and submitting declaration to that effect.

Explanation: In calculating the turnover, reference rates of foreign currency of the Reserve Bank of India shall prevail.’

2. In rule 4, under the proviso, e-mail address and mobile number of the applicant or the agent of the applicant is now required to be included in respect of the address for service, while the previous proviso under the old rules required only the email or digital address of the applicant.

3. Rule 5 (2) (e) has been substituted which now says that in case where an application that was originally processed by a natural person and/ or startup and/ or small entity is fully or partly transferred to a person other than a natural person, startup or small entity, then the difference in the scale of fees shall be paid by the new applicant filing the request for transfer.

4. Further an explanation to Rule 5 (2) (e) has been included wherein it has been stated that, no difference in scale of fees shall be payable if a Startup entity, having filed an application for a design, ceases to be a startup or a small entity due to following reasons:

(i) lapse of the period during which it is recognised by the competent authority, or

(ii) its turnover subsequently crosses the financial threshold limit as notified by the competent authority.

5. In rule 10, under sub-rule (1), for registration of designs, articles shall be classified as per current edition of “International Classification for Industrial Designs (Locarno Classification)” published by World Intellectual Property Organization (WIPO).

6. Having included the rules for startups, the new rules also inserted a revised fee Schedule for the same, which substitutes the First Schedule in the old rules.

[1] It is pertinent to note that under the Startup India initiative, a startup is one which shall have an annual turnover not exceeding Rs. 100 crores for any of the financial years since its Incorporation.

Authored by Adit N Bhuva & Sri Vidhya Kumar

The Ministry of Corporate Affairs (“MCA”), had on 5th May 2020, allowed  companies to conduct their Annual General Meetings (“AGM”) by way of Video Conferencing (“VC”) till 31st December 2020.

The procedure for conducting the general meetings by VC can be accessed in the following link – http://eshwars.com/blog/clarification-on-passing-of-shareholder-resolutions-during-covid-19-conduct-extra-ordinary-general-meeting-egm-of-shareholders-remotely.

In addition to the procedure provided in the aforesaid link, the Companies will have to comply with the procedure provided in the circular of the MCA dated 5th May 2020.

Now the MCA has allowed the companies, whose AGMs were due to be held in the year 2020 or become due in the year 2021, to conduct their AGMs by way of video conferencing till 31st December 2021.

However, the Companies will have to hold the AGMs within the timelines prescribed under Companies Act, 2013.

Authored by Adit N Bhuva & Sri Vidhya Kumar

Brief background:

The Ministry of Corporate Affairs, had on 30th March 2020, introduced Companies Fresh Start Scheme 2020, to provide companies with an opportunity to make good any filing related defaults, irrespective of duration of default and make a fresh start as a fully compliant company.

The Scheme was in force from 1st April 2020 till 30th September 2020 and further extended to 31st December 2020.

The details of the Scheme can be accessed in http://eshwars.com/blog/opportunity-to-file-delayed-belated-returns-with-registrar-of-companies/.

Application for immunity:

The Companies which had filed belated returns/forms with the ROC under this Scheme, are required to file a form CFSS-2020, in order to get immunity from any prosecution or penalties for filing belated returns with ROC.

Time limit for filing the form CFSS-2020:

The Companies which had filed belated returns/forms with the ROC under this Scheme, has to file the form CFSS-2020 before 30th June 2021.

Authored by Aishwarya Lakshmi VM

Regulation 11 of SEBI (SAST) Regulations, 2011 [hereinafter, SAST Regulations], empowers SEBI to grant specific exemptions from the requirement of making an open offer, if the same gets triggered under Regulations 3, 4 and 5 of SAST Regulations. Here we present an analysis of the exemptions that were granted by SEBI during the calendar year 2020.

Tracing the Trajectory of Exemption Orders in 2020:

Split up of Exemption Orders granted by SEBI in the Calendar Year 2020
Exemption Orders to Family Trusts or Foundations 25
Exemption Orders to other entities 2
Total number of Exemption Order 27

 

The two exemptions that were granted to other entities were to:

1. The Government of Jammu and Kashmir for acquiring the stake in Jammu and Kashmir Bank Limited, and

2. To Greenway Advisors Private Limited for acquiring the stake in Sturdy Industries Limited.

Both these exemption orders were based on the recommendations of the Takeover Panel.

Exemption in Jammu and Kashmir Bank Ltd.

In the Jammu and Kashmir Bank Limited matter, the Government of Jammu & Kashmir proposed to infuse Rs.500 Crores as capital towards the recapitalisation of the Target Company and to maintain the Capital Adequacy Ratio as per RBI Guidelines. Towards this transaction, shares were proposed to be issued on a preferential basis. Post preferential allotment, the J&K Government’s shareholding was to increase by more than 5% thereby attracting Regulation 3(2) of the Takeover Regulations. Since there was to be no change in the control of the Target Company, and the minimum public shareholding requirement was also not getting affected, the same was approved by an exemption order.

Exemption in Sturdy Industries Ltd.

In the Sturdy Industries matter, Punjab National Bank and Allahabad Bank had acquired 51% of the equity share capital in the Target Company.  In accordance with the Strategic Debt Restructuring (SDR) Scheme the lender banks were to disinvest at least 26% of the equity shares held by them and this was proposed to be undertaken by transferring the shares to Greenway Advisor Private Ltd., the Acquirer. The transaction was approved by the Target Company and by the lenders since it was pursuant to RBI directions. There was a delay in documentation process from Allahabad Bank and hence a portion of the transfer was pending, while the portion from Punjab National Bank was completed before due date. Hence, exemption was granted to the acquirer to acquire the shares from Allahabad bank without having to go through the rigors of open offer and public announcement.

Notable exemptions granted to Family Trusts

Some of the exemptions granted to Family Trusts include the exemption for acquiring:

a. Alembic Pharmaceuticals Ltd., Alembic Limited and Paushak Limited (all three by CRA Family Trust),

b. Lux Industries Ltd. (by Ashok Todi Family Trust and 3 other Family Trusts),

c. Vadilal Industries Ltd. (by Shree Devarsh Trust and IVG Family Trust),

d. Borosil Glass Works Ltd. (by Pradeep Kumar Family Trust and Bajrang Lal Family Trust),

e. Globus Spiritus Limited (by Yamuna Family Trust),

f. Motilal Oswal Financial Services Limited (by Motilal Oswal Family Trust) and

g. IndiaBulls Housing Finance Limited (by Sameer Gehlot IBH Trust).

Why family trusts?

The rationale of granting such exemption to Family Trusts is that it streamlines succession planning making it easier for the promoter group to not undergo the rigours of a public announcement of an open offer. Promoters often choose Family Trust as a haven considering the possible reintroduction of estate taxation and to keep creditors at bay for personal guarantees given by the promoters for the company’s debts. It is interesting to note that even in 2020 SEBI received most applications for exemption orders from Family Trusts in accordance with the 2017 General Circular.

2017 General Circular of SEBI:

 SEBI vide General Circular No. SEBI/HO/CFD/DCR1/CIR/P/2017/131 dated 22nd December 2017 provided a standard format with instructions for the Acquirers to make an application under Regulation 11(1). In the Schedule of the said General Circular, SEBI had outlined additional compliance requirements for Family Trusts based on the recommendations of the Takeover Panel of SEBI. Exemption Orders had been granted only if the Trust Deed expressly mentions that:

1. The Trust in its substance is only a mirror image of the promoter’s holdings.

2. Only individual promoters, their relatives and lineal descendants are part of the trustees and beneficiaries.

3. The beneficial interest is not in any way be transferred / encumbered / alienated / pledged / mortgaged / assigned in the future.

4. In case of the dissolution of the Trust, the assets will be distributed only to the beneficiaries of the Trust or their legal heirs.

5. The Trustees are not entitled to delegate / transfer their powers to anyone except one among themselves.

In addition, there should not be any layering in terms of Trustees / Beneficiaries. The Trusts also ought to give undertakings relating to annual disclosure to SEBI regarding its compliance status, event-based disclosure if there arises any change in the trustees / beneficiaries and any change in ownership or control of shares or voting rights held by Trust within 2 days.

Conclusion:

Internal re-alignment of holdings which are non-commercial in nature such that the resultant shareholding pattern will neither in any way change the overall promoter or promoter group holding nor reduce the public shareholding or prejudicially affect their interests were granted exemption by SEBI under Regulation 11(1) of the SAST Regulations, and the family trusts based structures have only found favour from SEBI for grant of exemptions.

Authored by Vignesh Kumar

Date(s) of Order  27th November 2020
Purported contravention committed Delay in disclosure with respect to disposal of shares.
Provision breached Regulation 7(2)(a) of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015
Person charged and their designation Mr. P. Selvamani – Executive Vice President- Legal – Equitas Small Finance Bank Ltd
Company in respect of whom the adjudication order relates to Equitas Holdings Limited

INTRODUCTION: The Securities and Exchange Board of India (“SEBI”) had received references from Equitas Holdings Limited (hereinafter “the Company”) pertaining to dealing in scrip of the Company by certain officials of the company, including Mr. P. Selvamani (hereinafter “the Noticee”) during the month of October 2018, based on which an investigation was conducted by SEBI for violation of PIT Regulation.

BACKGROUND OF THE CASE:

1. The Noticee had availed a loan for exercising his ESOP (26,460 shares), and also a personal loan. The shares allotted under ESOP and free shares held in the demat account of the Noticee was pledged to the lender ( “the Pledgee”) as security.

2. The pledge agreement required the Noticee to maintain a margin of twice the loan outstanding, and if during the pendency of the loan the value of pledged securities fell below 1.9 times of the loan amount then the Noticee was required to prepay the loan immediately. The agreement further also stipulated that the Pledgee had the right to sell the pledged shares lying in Designated DP account without any further notice to the Noticee if the value of the pledged securities fall below 1.7 times of the loan obligations.

3. On October 26, 2018, the share prices of the Company fell, due to which the margin fell below 1.7 times of the loan, consequent to which the Pledgee had invoked the pledge and sold 36,325 shares aggregating to Rs. 32,45,275 to recover the shortfall in margin.

4. The Noticee disclosed to the Company, the sale on 7th November 2018.

5. On 19th November 2018, internal committee of the Company for Monitoring and Prevention of Insider Trading levied a penalty of Rs. 5000 on the Noticee for contravening PIT Regulations, and for breach of their Internal Code of Conduct for Prevention of Insider Trading.

6. After the same was reported to SEBI, it commenced adjudication proceedings on the Noticee.

DEFENCE OF THE NOTICEE:

1. The Noticee was not a designated person under PIT Regulations and was not in possession of any UPSI, the mistakes did not have any detrimental impact on the Company or its investors even in terms of the PIT Regulations.

2. On 26.10.2018, the representatives from office of the Pledgee had communicated the shortfall of margin to the Noticee and before the Noticee could arrange for funds, the Pledgee had sold 36,325 shares without consent of the Noticee and utilised the proceeds to prepay loan and maintain the required margin.

3. The Noticee received intimation from the Pledgee with respect to sale of shares only on 05.11.2018 and the same was intimated to the Company on 07.11.2018.

FINDINGS BY THE ADJUDICATING OFFICER (“AO”):

1. The Pledgee intimated the Noticee about the shortfall in the margin due to the fall in the price of the shares of the company pledged on October 26, 2018 and had asked the Noticee to recompense for the shortfall. This contradicts the stand of the Noticee that hardly any notice was given to the Noticee before the pledge was invoked and the shares were disposed of.

2. The Noticee was aware of the terms and conditions of the pledge agreement, and the disposal of shares from his account by invocation of the pledge, despite intimation him regarding shortfall of margin, prior to the invocation cannot be said to have happened without the consent of the Noticee.

3. When the pledge was invoked CDSL had sent SMS to the Noticee on the same at 13:20:26 hours.

4. The Noticee by his 15th November 2018 letter to the Company had stated that when the share price fell on 26/10/2018, the Pledgee had called him about the shortfall in margin, which contradicts with his stand that he came to know of the sale only after 7 days i.e. 2nd November 2018.

5. The AO took certain statements from the written submission to hold it against the Noticee for the delay in making disclosure under PIT Regulations:

a. His submission that he had inadvertently failed to look into the compliance requirements prescribed under the PIT Regulations.

b. He was under acute pressure and failed to calculate and keep track of exceeding the Rs. 10 lakh limit as prescribed under Reg. 7(2) of the PIT Regulations.

c. He was aware of the need to intimate the company about sale of shares, but completely missed his mind in view of the mental distress that he was undergoing.

d. Delay in intimation to the Company is solely attributable inadvertence and unintentional oversight.

e. Any act of imposing additional penalty for the technical mistake in delay in reporting to the company of such sale of shares would add further damage and put the Noticee into irreparable damage.

f. He has already been penalised by the internal committee and the same has been complied with.

6. From the submissions the AO observed that the Noticee had accepted the findings of the internal committee of the company holding him liable of violation of the norms of disclosure and had already paid the penalty levied by the company for the said violation.

7. The disclosure with respect to sale of shares of the Company held in the name of the Noticee was intimated to the company on 7th November 2018. This was clearly beyond the statutory time period of two working days from October 29, 2018, the date on which the Noticee had come to know of the sale transaction from the intimation received pursuant to the confiscation of shares from his demat account.

DECISION OF THE AO:

1. The AO concluded that the sale of shares took place with knowledge of the Noticee. He ought to have intimated the company within two working days of the same, and has violated Reg. [1]7(2)(a) of PIT Regulations.

2. No allegation of insider trading has indeed been levelled against the Noticee in the show cause notice. The question of deriving any profit or loss is wholly irrelevant to the violation committed in the present case as the question in the present case only pertains to the delay in disclosure of sale of shares of the Company held by the Noticee as required under PIT Regulations.

3. A penalty of Rs. 1,00,000/- was levied on the Noticee.

OBSERVATIONS FROM THE ORDERS OF AO:

a. In the present context of a disclosure-based regime of the securities market, any default in making requisite disclosures is not considered lightly.

b. Since the Noticee did not make any profit from the sale transaction was a mitigating factor in determining the quantum of penalty, but does not nullify the conduct of regulatory non-compliance on the part of the Noticee.

c. Employees need to exercise caution before borrowing for exercise of ESOPs, and should do the same based on the inherent strength of their company.

[1] Regulation 7(2)(a) of SEBI (PIT) Regulations – Every promoter, employee and director of every company shall disclose to the company the number of such securities acquired or disposed of within two trading days of such transaction if the value of the securities traded, whether in one transaction or a series of transactions over any calendar quarter, aggregates to a traded value in excess of ten lakh rupees or such other value as may be specified

Authored by Padma Akila

Date(s) of Order  11th December 2020
Purported contravention committed Noticee bought Futures of the Company hours before announcement of PSI, and charged for violation of Reg 4(1) of PIT Regulations, 2015; (ii) Non-obtaining of pre-clearance of the trade and was charged with violation of Clause 6 of the Minimum Standards for Code of Conduct to Regulate, Monitor and Report Trading by Insiders as specified in Schedule B r/w Reg 9(1) of PIT Regulations, 2015; and (iii) Did not make disclosure for trade value that exceeded Rs. 10 lakhs and was charged to have violated Reg 7(2)(a) of PIT Regulations, 2015.
Person charged and who is he Mr. Srinivas Maddineni [Assistant General Manager, Designated Person in the Company who directly reported to the whole time director of the Company] “Noticee
Companies in which insider trading and fraud had been committed Divi’s Laboratories Limited

BACKGROUND OF THE CASE:

1. Pursuant to an investigation by SEBI, it was observed that the Company had made announcement to stock exchanges on July 10, 2017 around 11:50 am, as a material event under [1]Regulation 30 of SEBI (LODR) Regulations, 2015 titled “USFDA to Lift Import Alert 99-32 on the company’s Unit-II at Visakhapatnam”, which had material impact on the price of the scrip of the Company. This announcement was construed as UPSI by the investigation.

2. Investigation revealed that the whole time director (to whom the Noticee reported) was aware of UPSI, and that the Noticee was not only an Assistant General Manager (AGM) and a Designated Person in the Company, but also reported directly to the whole time director. Therefore, it was alleged in the SCN that the Noticee was a connected person who had reasonable access to the UPSI, and had traded only on the scrip of the Company during the UPSI period thereby indulging in “insider trading”, in terms of Regulation 4(1) of PIT Regulations, 2015.

3. It was also observed from the submission of the Company that the Noticee did not obtain pre-clearance for his aforementioned trade. Further, the Noticee vide email dated September 04, 2019 had accepted that he did not take any pre-clearance from the Company for the aforementioned trade. Hence, according to the SCN, the Noticee had allegedly violated [2]Clause 6 of the Minimum Standards for Code of Conduct to Regulate, Monitor and Report Trading by Insiders as specified in Schedule B read with [3]Regulation 9(1) of PIT Regulations, 2015.

CONTENTION OF THE NOTICEE:

1. The Noticee submitted that there was no internal communication or information regarding UPSI to him through any means and that he had not received any sort of information on the UPSI from the whole time director.

2. The trades were executed by the Noticee without knowing about the UPSI and thus said trade was purely co-incidental and not because of knowledge of the UPSI.

FINDINGS BY THE WOLE TIME MEMBER (“WTM”):

1. The Noticee was an ‘insider’ in terms of Regulation 2(1)(g)(i) and Regulation 2(1)(g)(ii) and a ‘Connected Person’ in terms of Regulation 2(1)(d)(i) of PIT Regulations, 2015. The Noticee was in employment with the Company since 1995, and was an AGM in the Environment, Health and Safety Department at the Company, during the UPSI Period. Thus, the Noticee was directly associated with the Company and thus a ‘Connected Person’ in terms of Regulation 2(1)(d)(i) of PIT Regulations, 2015

2. Under Regulation 4(2) of PIT Regulations, 2015, the burden of proof to establish that a ‘Connected Person’ is not in possession of UPSI lies on the ‘Connected Person’, as trades by Connected Person in the securities of that company when there was a UPSI, gives rise to a reasonable inference that such person has traded when in possession of UPSI.

3. The Noticee in this matter had merely made a bald statement that he was not in possession of and did not have access to any UPSI without providing any corroborating evidence. By virtue of being a ‘Connected Person’ coupled with his conduct, he had taken positions in the futures contracts of the Company approximately 2.5 hours before the UPSI becoming public and thereafter squared off his position on UPSI becoming public, a strong presumption was created that the Noticee, by virtue of his association with the Company was reasonably expected to have access to UPSI. Hence, it was concluded that the Noticee being an insider of the Company and on being connected person, has traded in the scrip of the Company when there was UPSI.

4. In addition the Noticee had not disputed his reporting relationship with the whole time director (who was in receipt of the UPSI), and he had also not presented any reliable explanation supported by cogent evidence of not having any access to the UPSI. Therefore, from the trading pattern of the Noticee, coupled with his direct and frequent relationship with the whole time director, who had access to UPSI, it was concluded that the Noticee was in possession of UPSI when he traded in the scrip of the Company before it was disclosed to stock exchanges and became public.

5. The Noticee, being a Designated Person and having executed trades in the scrip of the Company over a value of Rs. 10 Lacs, was required to disclose to the Company the number of such securities acquired or disposed of within two trading days of such transactions. However, the Noticee has failed to do so and in his reply had acknowledged his failure to make the required disclosure in terms of[1]Regulation 7(2)(a) of PIT Regulations, 2015.

6. As regards, pre-clearance, the order reasoned that the question of pre-clearance of trades did not arise when the designated person possess of UPSI as there is a prohibition from trading in the scrip of the company under Reg 4(1) of PIT Regulations, 2015. In this case, the Noticee had been found to have violated Reg 4(1) of PIT Regulations, 2015 for trading in the scrip of the Company when in possession of UPSI. Thus, the question of obtaining pre-clearance for the impugned trades does not arise.

DECISION OF THE WTM:

Having concluded that the Noticee  had indulged in ‘insider trading’, and had also not  disclosed the transaction, taking note of his wrongful gain of Rs.1,83,000, the same was ordered to be disgorged and a penalty of Rs. 1 lakh levied, and was also debarred from the securities market for a specified period.

[1] Regulation 30 of SEBI (LODR) Regulations, 2015 states “Every listed entity shall make disclosures of any events or information which, in the opinion of the board of directors of the listed company, is material…..”

[2] No designated person shall apply for pre-clearance of any proposed trade if such designated person is in possession of UPSI even if the trading window is not closed.

[3] Regulation (1) mandates a company to formulate a code of conduct to regulate, monitor and report trading by its employees and other connected persons, in compliance with PIT Regulations, 2015.

[1] 7(2)(a)- Disclosures by certain persons:

(2) Continual Disclosures.

(a) Every promoter, member of the promoter group, designated person and director of every company shall disclose to the company the number of such securities acquired or disposed of within two trading days of such transaction if the value of the securities traded, whether in one transaction or a series of transactions over any calendar quarter, aggregates to a traded value in excess of ten lakh rupees or such other value as may be specified;

Authored by Aneeruth Suresh & K. Ramasubramanian 

Introduction

Compounding is a process to facilitate those who have not complied with the provisions of Foreign Exchange Management Act, 1999 and the rules/ regulations/ notification/ orders/ directions/ circulars issued thereunder (“FEMA”/ “Act”). When the provisions of FEMA are not complied with by the person using foreign exchange, he is committing a contravention. He must have an avenue to rectify the contravention. To facilitate this rectification FEMA prescribes a method for compounding the contravention. Thus, contravention is a breach of the provisions of the FEMA. Compounding refers to the process of voluntarily admitting the Contravention, pleading guilty and seeking redressal. Hence, under this process, the person/entity committing default will file an application to the compounding authority accepting that it has committed the Contravention and such Contravention shall be condoned by paying up the penalty as imposed by RBI after offering an opportunity of personal hearing to the said contravener.

This concept of Compounding has been framed by Government of India empowering the RBI to compound contraventions under FEMA except Section 3(a) of FEMA in the manner provided under Foreign Exchange (Compounding Proceedings) Rules, 2000 as amended from time to time, with an objective to provide comfort to individuals and corporate community by minimizing transaction costs, while taking severe view of willful, malafide and fraudulent transactions, which will not be compounded by RBI. Further, in terms of the proviso to rule 8 (2) of Foreign Exchange (Compounding Proceedings) Rules, 2000 inserted vide GOI notification dated February 20, 2017, if the Enforcement Directorate (ED) is of the view that the compounding proceeding relates to a serious contravention suspected of money laundering, terror financing or affecting sovereignty and integrity of the nation, such cases will not be compounded by the RBI. All the provisions relating to compounding is updated in the RBI Master Direction-Compounding of Contraventions under FEMA, 1999. The process of compounding can be administered by the ED as well and thereby the contravener can approach any agency i.e., RBI or ED.

Following are few advantages of compounding of offences:

1. Simplified and short cut process to avoid litigation and thereby reduces the burden of judiciary;

2. Multiple offences, if any committed under FEMA can be compounded under one application;

3. No further inquiry/investigation/adjudication/proceeding will be initiated.

This process of compounding has been amended by the RBI and they have brought in significant changes in such process pursuant to the relevant A.P. (DIR Series) Circular, which is a welcome move and we have analysed the relevant A.P. (DIR Series) Circular in detail under this article.

Analysis of the RBI’s A.P. (DIR Series) Circular

With the above backdrop and further as we are all aware that the erstwhile Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 (“TISPRO Regulations”) had been superseded by Foreign Exchange Management (Non-Debt Instruments) Rules 2019 (“NDI Rules”) and FEM (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 (“MPR Regulations”), RBI has updated the references of the erstwhile TISPRO Regulations in line with the NDI Rules and MPR Regulations vide the RBI/2020-21/67 A.P. (DIR Series) Circular No. 06 dated November 17, 2020 (“Compounding Circular”) and following are the changes brought in by RBI in the said Compounding Circular:

a. The power to compound contraventions under TISPRO Regulations has been delegated to the Regional Offices/ Sub Offices of the RBI for the enhanced customer service and operational convenience, has now been aligned with corresponding provisions under NDI Rules and MPR Regulations, respectively are as follows:

Compounding of Contraventions under NDI Rules
Rule No. under NDI Rules Brief description of the Rules Corresponding Regulation No. under TISPRO Regulations Brief Particulars of the Contravention
Rule 2(k) read with Rule 5 Permission for making investment by a person resident outside India (Equity Instruments) Regulation No. 5 Issue of ineligible instruments.
Rule 21 Pricing guidelines Regulation No.11 Violation of pricing guidelines for issue/transfer of shares.
Paragraph 3 (b) of Schedule I Sectoral Caps – for total foreign investment Regulation 16.B Issue of shares without approval of RBI or Government respectively, wherever required.
Rule 4 Restriction on receiving investment; Regulation 4 Receiving investment in India from non-resident or taking on record transfer of shares by investee company.
Rule 9(4) Transfer by way of gift to person resident outside India by person resident in India of equity instruments or units of an Indian company on a non- repatriation basis with the prior approval of the Reserve Bank. Regulation 10(5) Gift of capital instruments by a person resident in India to a person resident outside India without seeking prior approval of the Reserve Bank of India.
Rule 13(3) Transfer by way of gift to person resident outside India by NRI or OCI of equity instruments or units of an Indian company on a non- repatriation basis with the prior approval of the Reserve Bank
Compounding of Contraventions under MPR Regulations
Rule No. under MPR Regulations Brief description of the MPR Regulations Corresponding Regulation No. under TISPRO Regulations Brief Particulars of the Contravention
Regulation 3.1(I)(A) Inward remittance from abroad through banking channels; Regulation 13.1(1) Delay in reporting inward remittance received for issue of shares.
Regulation 4(1) Form Foreign Currency-Gross Provisional Return (FC-GPR); Regulation 13.1(2) Delay in filing form FC (GPR) after issue of shares.
Regulation 4(2) Annual Return on Foreign Liabilities and Assets (FLA); Regulation 13.1(3) Delay in filing the Annual Return on Foreign Liabilities and Assets (FLA).
Regulation 4(3) Form Foreign Currency-Transfer of Shares (FC-TRS); Regulation 13.1(4) Delay in submission of form FC-TRS on transfer of shares from Resident to Non-Resident or from Non-resident to Resident.
Regulation 4(6) Form LLP (I); Regulations 13.1(7) and 13.1(8) Delay in reporting receipt of amount of consideration for capital contribution and acquisition of profit shares by Limited Liability Partnerships (LLPs)/ delay in reporting disinvestment / transfer of capital contribution or profit share between a resident and a non-resident (or vice-versa) in case of LLPs
Regulation 4(7) Form LLP (II);
Regulation 4(11) Downstream Investment Regulation 13.1(11) Delay in reporting the downstream investment made by an Indian entity or an investment vehicle in another Indian entity (which is considered as indirect foreign investment for the investee Indian entity in terms of these regulations), to Secretariat for Industrial Assistance, DIPP.

b. Discarding the classification of a Contravention as “Technical” contravention:

There are 3 types of contraventions pursuant to relevant circulars issued earlier by RBI:

(i) Technical and/or minor in nature and such nature of contravention can be dealt by RBI by way of an administrative/ cautionary advice;

(ii) Material in nature and that is required to be compounded for which the necessary compounding procedure has to be followed

(iii) Issues of sensitive / serious in nature and need to be referred to the ED.

Prior to this Compounding Circular, contravention of technical nature used to be dealt with by way of an administrative/ cautionary advice and the same is being done away with this Circular i.e., the RBI has decided to discard the classification of a contravention as ‘technical’ and regularize such contraventions by imposing minimal compounding amount as per the compounding matrix as contained in the Master Direction – Compounding of Contraventions under FEMA, 1999 as amended from time to time. In other words, the Reprimand and Condonation of any type of contravention, as a form of punishment in lieu of monetary penalty is totally dispensed with.

c. Public disclosure of compounding order:

Compounding orders issued by RBI can be accessed in its website. RBI has now decided that in respect of the compounding orders passed on or after March 01, 2020, only a summary information of such compounding orders, in lieu of the entire compounding orders, shall be published in the format, as mentioned below, in order to balance between the objectives of ensuring transparency & greater disclosure to the public and respecting confidentiality of the contravener:

No. Name of the Applicant Details of contraventions (provisions of the Act/Regulation/Rules compounded) Date of compounding order Amount imposed

Conclusion

From the foregoing presentation one may conclude that this circular amendment has facilitated

1. Inclusion and alignment of all contraventions resulting out of non-compliance with NDI Rules.

2. The publication of compounding orders passed by RBI will be in an abridged Form respecting the confidentiality of the contravener; and

3. The form of Reprimand and condonation now followed for certain contraventions have been totally dispensed with resulting in levy of monetary penalty for all cases of contraventions.

Authored by Deepika Venkataraman

The needs and wants of consumers are constantly changing and this plays a pivotal role in creating new products and services. All these changes spell opportunity for various business entrepreneurs thereby giving room to new business ideas. It is inevitable that with the advent of new emerging businesses, laws also needs to evolve. Given the fact that Trade Mark laws directly deal with important facets of a business, the classification and description of goods and services for filing of trademark applications and protection of brands also needs to be updated from time to time to include new lines and niche areas of businesses that are shaped by demands of consumers. In this regard, it is pertinent to note that the description of goods and services that are provided during the filing of trademark applications in India needs to be in accordance with an international system of classification of goods and services commonly knowns as the Nice Classification, which India is a party to.

The Nice International Classification System for trademarks was established by the Nice Agreement in 1957 as a way to categorise goods and services pertaining to the registration of a trademark. It basically distinguishes between goods and services. Every 5 years, a new Edition of the classification was published up until 2013. Since 2013, a new version of each edition is released annually. Nice Classifications help businesses to identify the nature of the related goods or services and seek adequate intellectual property protection.

The Nice Classification facilitates the search by organizing information concerning trademarks into indexed classes thereby making it easier to conduct a thorough search which helps in identifying the trademark registrations with specificity. The classification makes the trademark easy to be acknowledged, recognized and categorises among all signatory countries. These classifications exist so that businesses registering a trademark can identify the nature of the related good or service and seek adequate intellectual property protection.

Changes in the business eco-system and advancement of technology has made certain well-known businesses a relic of the past. For example, trademark registrations which dealt with goods such as video cassettes, floppy discs, phonograph records and with respect to services by telephone or facsimile. Given such development in technology, the owners of those trademark registrations may still continue to provide goods or services that may have the same function, content or subject matter, but in different formats, such as downloadable music files, electronic publications or digital/online services. It is for this reason that the Nice Classification of goods and services are continually reviewed and updated to include within its fold new areas of businesses and services that helps brand owners to seek protection in such new areas.

The Eleventh Edition, Version 2021 of the Nice Classification will come into force on 1 January 2021.The current Eleventh Edition, Version 2020 of the Nice Classification shall continue to apply to all applications filed from 1 January 2020 to 31 December 2020. Thereafter, applications filed from 1 January 2021 will be classified in accordance with NCL (11-2021).

In light of the various changes made to the Class Headings, it is important to adopt the updated Class Headings (in parts or in whole) if the same needs to be claimed in the application.

A copy of the Class Headings and Explanatory Notes of NCL (11-2021) and updated NCL can be accessed at WIPO under following link: https://www3.wipo.int/classifications/nice/nclef/public/en/project/NC021/annex/2.

https://www3.wipo.int/classifications/nice/nclef/public/en/project/NC021/annex/4.

The following table captures the list of various changes in the Nice classification description that have been added, deleted and changed.

Class Added description of goods and services Deleted description of goods and services Changed description of goods and services
1 Bio-stimulants for plants

 

NA NA
2 NA coatings for tarred felt [paints]

 

NA
3 body glitter,

double eyelid tapes

 

NA NA
4 NA NA paper spills for lighting fires,

wood spills for lighting fires

 

5 deodorizers for litter trays,

deodorisers for litter trays

 

 

NA seawater for medicinal bathing

 

6 horticultural frames of metal,

cold frames of metal

 

braces of metal for load handling,

harness of metal for load handling,

preserving boxes of metal

 

bottles [containers] of metal for compressed gas or liquid air

 

7 cheese slicers, electric,

vegetable peelers, electric

 

 

NA NA
8 NA NA vegetable slicers, hand-operated,

vegetable shredders, hand-operated,

vegetable peelers, hand-operated

 

9 NA NA ignition batteries,

life-saving apparatus and equipment

 

10 oxygen concentrators for medical purposes,

support bandages,

laser therapy helmets for treating alopecia

 

 

NA orthopaedic bandages for joints

 

11 dehumidifiers

 

NA lampshades

 

12 horse-drawn carriages,

amphibious vehicles,

all-terrain vehicles

 

 

NA handcars

 

16 protective covers for books,

colouring books,

coloring books

 

NA fingerstalls for office use

 

18 backpacks for carrying infants

 

NA NA
19 cold frames, not of metal

 

NA NA
20 drawers for furniture, luggage lockers

 

 

NA NA
21 abrasive mitts for scrubbing the skin NA shoe brushes,

fruit bowls

25 studs for football shoes

 

trouser straps

 

NA
28 bags especially designed for surfboards,

fidget toys

skating boots with skates attached

 

party balloons,

table-top games,

bags especially designed for skis

30 tea beverages with milk

 

NA seawater for cooking

 

33 NA NA digestifs [liqueurs and spirits]

 

35 NA NA website traffic optimization,

website traffic optimisation,

providing business information via a website

36 NA NA providing financial information via a website

 

40 NA NA window tinting treatment being surface coating

 

41 NA NA language interpretation

 

42 NA NA creating and maintaining websites for others,

website design consultancy,

providing information relating to computer technology and programming via a website

44 dietary and nutritional advice,

rental of surgical robots

NA NA
45 NA NA personal bodyguarding

Authored by Padma Akila

The Intellectual Property Appellate Board (IPAB) has stayed the operation of registration of ‘N95’ as trademark. The IPAB while considering a Rectification application filed by SASSOON FAB International Pvt. Ltd., (“Sassoon” / “Company”) held that N95 is a generic term in the mask industry and the same cannot be registered or protected as trade mark nor can it can be appropriated by any one person.

Sassoon which is engaged in the business of selling masks, had filed a rectification application under Section 57 of Trademark Act, 1999, for Removal of the “N95” label under Reg. No. 4487559 in class 10 registered in favour of one Mr. Sanjay Garg (“Respondent”). The Company submitted that it checked through the Respondent’s website, www.maya123.com and found that he was running a business of various Audio & Video accessories like cables, connectors, smart watches, speakers etc. On being contacted the Respondent claimed that he shall only allow those business houses to use N95 as a term on their products who share their profits with him. He further claimed that he was in the process to totally block the business of the Petitioner and other traders and threatened the petitioner’s representatives that they should advise the directors of the petitioner to contact him for a “business deal” within 2 days, else he will totally destroy the business of the Company. The Company submitted that Sanjay Garg had frivolously and fraudulently obtained an unlawful registration of the generic term N95 in class 10. As a result, the Company’s N95 masks were removed from www.amazon.in on the basis of complaints lodged by Sanjay Garg.

The IPAB observed that a generic expression can never be granted registration as a trade mark and/or no protection to the proprietor is provided under the trademark law. It opined that the wording N95 in the registered mark is descriptive of a characteristic of the masks, specifically that they filter at least 95% of airborne particles and are not strongly resistant to oil, is a standard and is a class of respiratory devices and thus a generic term. The IPAB further observed that the term N95 is in use worldwide ever since early 1970 having reference to  single respirator face masks which were designed to filter 95% of dust particles to enter the nose or mouth and was initially designed by the famous 3M Company for industrial uses and announced the same as an industry standard. It was held that the same is on the face of record a generic and/or a descriptive mark which is used extensively not only by members of the trade but also by various government authorities, institutions to refer to a particular type of the respiratory mask, which are in huge demand by hospital authorities, healthcare workers, and even general public due to ongoing COVID-19 pandemic.

The IPAB further stated that the term N95 serves as an indicator in the trade to designate the kind, quality, intended purpose and other characteristics of the particular product which is non-proprietary in nature. Hence the IPAB held that the registration of the mark was thus barred under the absolute grounds of refusal under Section 9 (1) (b) of the Trade Marks Act, 1999. In this regard, the IPAB referred to recent Madras High Court judgment in which it was observed that the terms ‘Magic’ and ‘Masala’ are commonly used terms by different manufacturers in the packaged food industry and it would be unfair to confer monopoly over the same expression. IPAB further observed that Sanjay Garg is a squatter and has got registered the generic term N95 as a trade mark to blackmail the bonafide users of the said term and to extract illegal monies. It was observed that he is not even using the said term nor was he dealing in the masks or any goods for that matter for which he had applied the said mark. The IPAB while staying the operation of the registration of the “N95” trademark registered under application 4487559 in class 10 stated that given the current public sentiment during this global public health crisis, and since the dishonesty factor holds the cardinal principle it is justified in staying the operation of the registration of the trademark until the Rectification Petition is finally decided. The application is now posted for further consideration on 5/3/2021.

Authored by Padma Akila

India bowls its first ball to become a global player by signing a MOU on intellectual property cooperation with the USA on 2nd December 2020. The MOU was signed between the Commerce Ministry’s Department for Promotion of Industry and Internal Trade (DPIIT) and the United States Patent and Trademark Office (USPTO), with an aim to increase IP cooperation between the two countries. The MOU was signed by way of a virtual signing ceremony conducted by DPIIT secretary Dr Guruprasad Mohapatra and USPTO director Andrei Iancu. According to the DPIIT, “The MoU will go a long way in fostering cooperation between India and USA, and provide opportunities to both countries to learn from the experience of each other, especially in terms of best practices followed in the other country. It will be a landmark step forward in India’s journey towards becoming a major player in global innovation and will further the objectives of National IPR Policy, 2016.

This MoU is expected to increase the IP cooperation between India and the US in many ways, according to a statement released by the government. This agreement will aid in conducting programs and events to provide details of the best practices, experiences and more such knowledge on IP to the public as well as the industry, universities, Research and Development (R&D) and small and medium-sized enterprises. It is also expected to motivate collaboration in training programs, exchange of experts, technical exchanges. The MoU provides for knowledge on processes for registration and examination of applications for patents, trademarks, copyrights, geographical indications, and industrial designs, as well as the protection, enforcement and use of intellectual property rights. It will also help in the exchange of information on the development and implementation of automation and modernisation projects, new documentation and information systems in IP and procedures for management of IP office services. Both the countries will come up with a Biennial Work Plan to implement the MoU and to carry out cooperation activities. The work plan will also include a detailed procedure to carry through the terms of cooperation.

Further details of this MOU can be accessed at: https://dipp.gov.in/sites/default/files/pressRelease-MoU-IP-03December2020.pdf

 

Authored by Adit N Bhuva

Brief background on data bank of independent directors:

The Ministry of Corporate Affairs (“Ministry”) had with effect from 1st December 2019, for the following category of persons, introduced the requirement of registering with the Institute Indian Institute of Corporate Affairs at Manesar (“Institute”) for the purpose of inclusion of their name in the data bank for the independent directors:

(i) Persons who are already independent directors in a company, are required to get their name included in the data bank within 13 months from 1st December 2019 i.e., on or before 31st December 2020;

(ii) Persons intending to be appointed as independent directors have to get their name included in the data bank, prior to their appointment.

Requirement of an online proficiency self assessment test:

In addition to getting their name included in the data bank, the Independent Directors, will have pass an online proficiency self assessment test conducted by the Institute within a period of 1 year form the date of inclusion of their name in the data bank.

Relaxations provided:

The Ministry, on 18th December 2020, has provided the following relaxations with respect to the requirement of online proficiency self assessment test:

S.No. Particulars

 

(Column A)

Earlier requirement

(Column B)

Relaxation provided

 

(Column C)

1. Time limit for passing the online proficiency self-assessment test Time period of one year (from the date of inclusion of name in the data bank) was provided to pass an online proficiency self-assessment test. This time limit has been extended to 2 years.
2. Exemption from requirement of the online proficiency self-assessment test Exempted, if an Individual has served as a director or key managerial personnel for a total period of not less than 10 years in any of the following:

 

(a) listed public company; or

(b) unlisted public company having a paid-up share capital of Rs. 10 crore or more; or

(c) body corporate listed on a recognized stock exchange

 

(“herein after referred to as “Prescribed Entities”)

The time of serving in the Prescribed Entities has been reduced from 10 years to 3 years and in addition to the list of entities provided in Column (B), the following list of entities have been added:

 

(A) Director or key managerial personnel in a:

 

(i) body corporate listed on a stock exchange in a country which is a member state of the Financial Action Task Force on Money Laundering and the regulator of the securities market in such member state is a member of the international organization of securities commission;

(ii) Bodies Corporate incorporated outside India having a paid-up share capital of US$ 2 million or more;

(iii) Statutory Corporations set up under an Act of parliament or any state legislature carrying on commercial activities; or

(B) If a person was in a pay scale of Director or above in the Ministry of Corporate Affairs or the Ministry of Finance or Ministry of Commerce and Industry or the Ministry of Heavy Industries and Public Enterprises and having experience in handling the matters relating to corporate laws or securities laws or economic laws; or

(C) If a person was in a pay scale of Chief General Manager or above in the SEBI or RBI or IRDAI or Pension Fund Regulatory and Development Authority and having experience in handling the matters relating to corporate laws or securities laws or economic laws

3 Pass percentage for clearing the online proficiency self-assessment test The pass percentage was 60%. Now the pass percentage has been reduced to 50%.

Authored by Adit N Bhuva

The Ministry of Corporate Affairs has on 17th December 2020, extended the time from which the Companies (Auditor’s Report) Order, 2020 (hereinafter referred to as “CARO 2020” or “Order”) will be applicable. After this extension, CARO 2020 will be effective from the financial year 1st April 2021-2022 onwards. This means that the auditor’s report of the Companies to whom CARO, 2020 is applicable, will have to contain the matters provided in the CARO, 2020, from Financial year 2021-22 onwards.

Brief background on CARO, 2020:

CARO, 2020 was introduced by the Ministry on 25th February 2020 and the same was to replace the CARO, 2016. As per the Order, the same was applicable from 1st April 2019 onwards. However due to the Covid-19 pandemic situation, the Ministry had on 24th March 2020 provided an extenstion on applicability from 1st April 2020 onwards.

Companies exempted from applicability of CARO, 2020:

1. A banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949;

2. An insurance company as defined under the Insurance Act,1938;

3. A company licensed to operate under section 8 of the Companies Act;

4. A One Person Company as defined in clause (62) of section 2 of the Companies Act;

5. A small company as defined in clause (85) of section 2 of the Companies Act; and

6. A private limited company, which is not a subsidiary or holding company of a public company, and:

a. having a paid up capital and reserves and surplus not more than 1 crore rupees as on the balance sheet date; and

b. which does not have total borrowings exceeding 1 crore rupees from any bank or financial institution at any point of time during the financial year; and

c. which does not have a total revenue as disclosed in Scheduled III to the Companies Act (including revenue from discontinuing operations) exceeding 10 crore rupees during the financial year as per the financial statements.

Authored by Padma Akila

On 17th December 2020, the Copyright office (CO) released a Public Notice, wherein it has introduced a new e-filing facility for registration of changes in particulars of copyright entered in the register of copyrights through form XV. The CO in its notice has stated that in its endeavour to enhance transparency and digital empowerment of users it has decided to introduce this e-filing facility.

Users may choose the “Change in RoC (Form XV)” option under the head ‘e-filing of application’ in ‘online services’ available at the CO’s official website. This much needed convenience provided by the CO at the time of a global pandemic is expected have a positive effect towards all the users who can now record any changes in the particulars of a copyright ownership electronically, which will also lead to efficient management of copyright portfolios. The Notice also gives payment details of Change in Particulars (Form XV), relevant documents to be submitted along with the Application and a detailed step by step, picturised guidelines for filing Change in particulars (Form XV). This public notice can be accessed on https://copyright.gov.in/Documents/PublicNotice47.pdf 

Authored by Lakshmi Rengarajan

SEBI had issued a circular stating the cut-off date of re-lodgment of transfer as 31st March 2021 beyond which all the transfer of shares will be made in demat mode.

In this regard, SEBI has issued the following set of operational guidelines for crediting the transferred shares into the demat account of the transferee.

Step 1: After the transfer of shares, the Registrar and Share Transfer Agent (“RTA”) shall retain the physical shares and intimate the transferee of the execution of transfer through letter of confirmation (“LOC”) through registered post/ speed post/ email.

Step 2: The transferee should submit the demat request within 90 days of issue of LOC to the depository participant. At the end of 60 days from the date of issue of LOC, RTA should also inform the transferee to submit the demat request.

Step 3: Depository participant on the basis of LOC will process such demat request.

Step 4: In case of non-receipt of demat request from transferee within 90 days of LOC, the shares will be credited to the suspense escrow demat account of the company.

In case where shares are transferred by RTA pursuant to the non-cooperation or inability of the transferor, the RTA, at the time of approving the demat request, should intimate the depository and the shares will be in locked in for a period of six months from the date of registration of transfer in demat mode.

This circular can be read here: https://www.sebi.gov.in/legal/circulars/dec-2020/operational-guidelines-for-transfer-and-dematerialization-of-re-lodged-physical-shares_48336.html

Authored by Padma Akila R

Date of Order  12th November 2020
Grievance based on which Appeal was filed The Appellants’ demat accounts were frozen by Central Depository Services (India) Ltd. on the instructions given by BSE for non-compliance of Reg. 33 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”) by the company, Subway Finance and Investment.
Appellants Manisha B. Kadhi (“Appellant 1” and Promoter of Subway Finance and Investment), Bhupendra Kadhi (“Appellant 2”and Promoters of Subway Finance and Investment) and Harhit Kadhi & Heer Kadhi (“Appellants 3” and children of Appellants 1 & 2)
Persons against whom the Appeal was filed SEBI (“Respondent 1”), BSE Ltd (‘BSE’, “Respondent 2”), Subway Finance and Investment (“Respondent 3”), Central Depository Services (India) Ltd. (“Respondent 4/company”)

FACTS THAT LEAD TO FILING THE APPEAL

1. The Respondent 3 had failed to submit the financial results and audit reports for its quarterly results for two consecutive quarters viz: September 2018 and December 2018.

2. Stock exchange pursuant to the circular dated May 3, 2018 pertaining to standard operating procedure for suspension and revocation of trading for non-compliance of certain provisions of LODR Regulations, issued notices on 4 different dates requiring the Respondent 3 to comply with Regulation 33[i] and also pay the fine.

3. Respondent 3 did not comply with the same, and hence BSE directed suspension of trading and also directed freezing of entire shareholding of promoter and promoter group.

4. The Appellant 1 and 2 held small stake of 2% shares each and the children held demat account jointly with Appellant 1, and were not involved in the day to day management of Respondent 3.

5. The Appellants were informed by Respondent 3 that it has complied with the order, a week prior to the freeze order was to take effect.

6. Letters written by the Appellants to the stock exchange did not yield result, which led to filing the appeal.

GROUNDS OF APPEAL

a) The Appellants challenged the circulars dated November 30, 2015 and October 26, 2016 (specified as October 20, 2016 in the SAT Order), both of which were issued under Regulations 97 and 98 of the LODR Regulations, as arbitrary as they override the LODR Regulations.

b) The Appellants held on 2% shares, and as the non-compliance is by the company, only the directors should be penalised and not the promoters, and hence the circulars were arbitrary.

c) Since, the Respondent 3 has subsequently complied with Reg. 33 and also deposited fine, continuing the freezing of their demat account was arbitrary and illegal.

DECISION OF SAT:

1. In view of the decision of the Hon’ble Supreme Court in National Securities Depository Ltd. vs. Securities and Exchange Board of India [(2017) 5 SCC 517], it was not open for SAT to question the veracity and / or legality of a circular issued by SEBI and that the validity and legality of such a circular could only be challenged by a party in a writ jurisdiction under Article 226 of the Constitution of India. Thus, SAT concluded that the prayer of the Appellants for quashing of the circulars dated November 30, 2015 and October 26, 2016 which was superseded by the circular dated May 3, 2018 did not arise.

2. With regard to the contention that they were promoters to the extent of 2% of the company, and were not involved in the day to day management was not accepted. SAT held that a promoter plays a vital role in the raising of the capital for a company and, therefore, the role of a promoter is subject to greater scrutiny irrespective of his shareholding and his position in the management of the company. SAT further held that it was immaterial that the appellants were not actively involved in the management of the company. Further, Regulation 98[i] of the LODR Regulations read with the circular dated May 3, 2018 allowed BSE to freeze the demat accounts of the promoters and promoter group for non-compliance of the LODR Regulations.

3. As regard the continuation of the freeze of the demat accounts even after compliance and payment of the fine, the stock exchange had contended that Respondent 3 had defaulted under other provisions of the LODR Regulations and consequently, till such time compliances of the other provisions of the Regulations were not made by the company, the freezing of the demat accounts of the appellants would continue.

4. SAT dismissed the above contention of the stock exchange, and held that once the non-compliance of Regulation 33 of the LODR Regulations was subsequently complied by the company on April 30, 2019, the freezing of the demat accounts should come to an end there and then. SAT further said, if the Respondent 3 has violated any other provisions of the LODR Regulations, it would be open to BSE to issue notice to the company requiring them to comply with the provisions and if they failed to comply within the stipulated period, it was open to BSE to proceed against the company, Directors, promoters in accordance with law, but the freezing of the demat accounts cannot continue when the initial violation of the provision stood complied with and came to an end. The freezing of the demat accounts of the Appellants pursuant to the order of BSE dated April 16, 2019 was set aside by SAT

[i] Regulation 33 requires that financial results and audit reports of the company to be uploaded on the platform of the stock exchange on a quarterly basis after being approved by the Board of Directors of the company

[i] Regulation 98 talks about the consequences to be faced by a listed entity or any other person who contravenes any of the provisions of the LODR regulations.

Authored by Aishwarya Lakshmi VM

On 23rd November 2020, the Securities Exchange Board of India [SEBI] issued a consultation paper on “The reclassification of promoter/promoter group entities and disclosure of the promoter group entities in the shareholding pattern” inviting comments on the proposed amendment to the policy framework from stakeholders on or before 24th December, 2020.

Understanding Regulation 31A:

Considering the need for re-classification of promoter/promoter group entities as public and vice versa, a discussion paper of SEBI in 2018 analysed various scenarios and came up with the said concept, which was consequently codified under Regulation 31A of the SEBI (Listing Obligations and Disclosure Requirement) Regulations, 2015.

As per the said Regulation 31A, a promoter/promoter group entity seeking reclassification shall make an application to the board of directors of the Listed Entity. The directors are to analyse the same and decide on placing it before the shareholders in a general meeting for their approval by an ordinary resolution. The timelines here are:

a) There shall be a gap of minimum 3 months and not exceeding 6 months between the board meeting and general meeting.

b) Post approval in the general meeting, the application to the stock exchange shall be made within 30 days.

There are also additional conditions, the violation of which will result in the applicant to be reclassified back as promoter/promoter group entity itself. These include:

i. not holding more than 10% of the total voting rights;

ii. not exercising control over the affairs of the listed entity, directly or indirectly;

iii. not having any special rights through formal / informal arrangements;

iv. not to be represented on the Board (including appointing Nominee Director);

v. not act as a KMP of the listed entity;

vi. not be a ‘Willful Defaulter’ as per RBI Guidelines;

vii. not be a fugitive economic offender.

While conditions (i) to (iii) are perpetual, (iv) and (v) are subject to a cooling-off period of 3 years from the date of reclassification.

Need for change:

Since the current regulatory framework is hard to comply with, several entities have obtained case-to-case basis relaxations. The matter was discussed by the Primary Market Advisory Committee (‘PMAC’) of SEBI in its meeting held on November 11, 2020 to reduce the number of exemptions.

Proposals and Rationale:

S. No. Relevant Requirement Existing Proposed Rationale for proposing the change
1 Condition pertaining to minimum threshold of voting rights – by promoters seeking reclassification and those related to promoters seeking reclassification. 10% 15% Persons who may have been promoters but are no longer in day-to-day control having shareholding of less than 15% may “opt-out” from being classified as “promoters”, without having to reduce their share-holding.
2 Minimum time period between board meeting and general meeting 3 Months 1 Month The minimum time gap of three months is too long increasing the total time taken in the process.
3 Reclassification pursuant to an order / direction of Government or regulator Applicable to Resolution Plan under S.31 of the IBC, 2016. Expanding the scope to order / direction of Government / regulator Since it’s a natural consequence to undergo reclassification pursuant to an order / direction of Government or regulator the proposed limit eases the process.
4 Reclassification of existing promoter pursuant to open offer under SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2015 [SAST Regulations] No existing provision 1.

The intent of the existing promoter(s) to re-classify is disclosed in the letter of offer

 

 

2. Reclassification if the promoter is non-traceable or non-cooperative and the Company has taken efforts to contact the promoter.

1. The requirement of promoter making an application for reclassification is a mere procedural formality since the fact is disclosed in the Letter of Offer and the information is already present in the public domain.

 

2. The non-traceability and non-cooperation of promoters results in the continued classification of the concerned as promoter despite losing actual control of the company.

5 Time period to place the reclassification request before the board of directors No existing provision Within one month of receiving the request from the promoter / promoter group. There are cases where the request is not placed before the Board thus ceasing the process in its initial phase itself.
6 Disclosure of Names of Promoter Group Entities in the shareholding pattern. No existing provision All entities falling under promoter / promoter group shall be disclosed even in case of “NIL” Shareholding.

 

 

 

Listed entities to obtain quarterly declaration from their promoters specifying the names of entities / persons that form part of the ‘promoter group’.

Though Regulation 31 clearly prescribes the disclosure of ‘all entities’ there are cases where listed companies have not been disclosing names of persons in the promoter / promoter group with “Nil” Shareholding.

Authored by Ammu Brigit

Under the Drugs and Cosmetics Act 1940 (DCA) and Drugs and Cosmetics Rules 1945 (DCR), the Central Drug Laboratory (CDL) is designated with the responsibility of analysing and testing the samples of drugs as sent to it, and to carry out other functions entrusted to it by the Central Government or by a State Government after consultation with Drugs Technical Advisory Board. Central Drug System Control Organisation (CDSCO) has recognised seven CDLs which are in Kolkata, Mumbai, Guwahati, Chandigarh, Kasauli, Hyderabad and Chennai along Indian Veterinary Research Institute, Ghaziabad, National Institute of Biologics Noida (NIB Noida) and Indian Pharmacopoeia Commission, Ghaziabad.

Out of these, CDL Kasauli, Himachal Pradesh  is responsible for the testing of the vaccine, and  National Institute of Biologics, Noida (NIB Noida), an autonomous institute under the control of Ministry of Health and Family Welfare (MoHFW) is responsible to  carry  out the function of the CDL in respect of blood grouping reagents and diagnostic kits for HIV, Hepatitis B surface antigen, and Hepatitis C Virus pursuant to Rule 3 of DCR.

Since the outbreak of Covd-19, CDL Kasauli has been undertaking the evaluation of vaccine for Covid-19 as instructed by Central Drug System Control Organisation (CDSCO). Recently, MoHFW vide a notification dated 24th November 2020 (Notification) has decided that NIB Noida will act as an additional facility to perform the functions of the CDL with respect to Covid-19 vaccines along with its existing functions.

The Director of NIB Noida shall perform the functions of the Director of CDL in relation to Covid-19 vaccine. MoHFW has notified NIB Noida as a CDL with respect to Covid-19 vaccine  by  MoHFW after the consultation with Drug Controller of India and by exercising its power under DCA and DCR to prescribe the functions of CDL to any laboratory with respect to any drug or class of drug(Section 6) and to regulate or restrict the manufacture, sale or distribution of a drug which is essential to meet the requirement of an emergency and which is expedient and necessary for public interest(Section 26B).

This Notification was released by MoHFW in the wake of Covid-19 to regulate the testing and supply of Covid-19 vaccine and shall remain effective till 30th November 2021.

Authored by Lakshmi Rengarajan

SEBI vide circular dated November 3, 2020, amended its previous circular dated March 10, 2017, updating the information that is required to be submitted by listed entities to the stock exchange, before submitting the scheme of arrangement to National Company Law Tribunal (“NCLT”). In this article, we consolidate the two circulars and summarise the information that is required to be provided to the stock exchanges.

Applicability

Listed Entities which intend to restructure-whether by way of merger, demerger, reduction of share capital, or any other scheme of arrangement with its members or creditors are required to file the Scheme with the stock exchanges pursuant to the provisions of SEBI (Listing Obligations and Disclosure Requirements), 2015 [“SEBI LODR”], and obtain a No-objection letter (“NOC”) from it before filing the restructuring proposal with NCLT.

There are also compliances to be carried out after the restructuring proposal is approved by NCLT.

Exemption

The requirement under SEBI LODR is not applicable to:

a) restructuring proposal that is approved as part of resolution plan under section 31 of the Insolvency and Bankruptcy Code, 2016;

b) merger of a wholly owned subsidiary company with its parent company.

I. Information to be filed with stock exchange before filing the Scheme with NCLT

1. To designate one of the stock exchange with nation-wide terminal for coordinating with SEBI.

2. Documents to be provided to the stock exchange, and also to be uploaded on website of the Company:

(a) Draft scheme of arrangement/ amalgamation/ merger/ reconstruction/ reduction of capital (“Scheme”);

(b) Valuation Report from Registered Valuer (Valuation report not required when there is no change in shareholding pattern of the resultant company);

(c) Report from the Audit Committee recommending the Scheme taking into consideration the valuation report. The report should contain comments on:

i. Need for the merger/demerger/amalgamation/arrangement

ii. Rationale of the scheme

iii. Synergies of business of the entities involved in the scheme

iv. Impact of the scheme on the shareholders.

v. Cost benefit analysis of the scheme

(d) Fairness opinion by a SEBI Registered merchant banker on valuation of assets / shares;

(e) Auditor’s Certificate to the effect that the accounting treatment contained in the Scheme is in compliance with all the Accounting Standards;

(f) Compliance Report certified by the Company Secretary, Chief Financial Officer and the Managing Director, confirming compliance with various regulatory requirements;

(g) Report from the Independent Directors committee recommending the draft Scheme;

(h) Undertaking certified by the board and certified by its auditor, if the situations specified in para VII 2 (a) to (e) below is not applicable to the Scheme.

II. Merger of unlisted entity with listed entity

1. Where the Scheme involves unlisted entities, the following additional matters are also required to be fulfilled:

Information submission:

The information to be provided under the previous paragraph, should also include the following information:

i. Pre and post amalgamation shareholding pattern for the unlisted entity.

ii. Audited financials of last 3 years for the unlisted entity

iii. Certificate by merchant banker certifying the accuracy and adequacy of the disclosure to shareholders as given below.

Disclosure to shareholders

The explanatory statement or notice or proposal accompanying the resolution for seeking the approval of the Scheme from the shareholders, should include the applicable information from the format of abridged prospectus as in Part D of Schedule VII of ICDR Regulations.

2. Post merger shareholding pattern

The post-merger shareholding, of the public shareholders and that of QIB’s of the unlisted company, in the merged entity should be greater than or equal to 25%.

III. Report on complaints

Simultaneous with the submission of information with the stock exchange, the listed entity is also required to upload the details on its web site. In the event the listed entity receives any comments or complaints on the draft scheme, such information is also required to be submitted to the stock exchange (designated for coordinating with SEBI) within 28 days from the date of filing the Scheme with the stock exchange.

IV. Dissemination of the observation letter

The listed entity should upload on its website the observation letter of the stock exchange within 24 hours of receiving the same.

V. Changes to the Scheme

Once the Scheme is filed with the stock exchange, no change is permitted, except those that required by any regulator or the tribunal.

VI. Information to be contained in the notice/explanatory statement to be sent to members while convening the meeting for approval of the Scheme:

 In addition to the information that is required to be specified under section 230(3) of the Companies Act, 2013, r/w rule 6 of the Companies (Compromises, Arrangements and Amalgamations) Rule, 2016, in the notice/explanatory statement that is sent in Form No. CAA 2, the following should also be included:

(a) Observation letter

(b) Pre and post arrangement capital structure and shareholding pattern

(c) Fairness opinion

VII. E-voting and simple majority of Public/Non-Promoter shareholders

1. The shareholders should be provided with the facility to vote on the Scheme through electronic voting.

2. Also, the Scheme can be acted upon only if the votes cast by public shareholders in favour of the Scheme is greater than the votes cast against it by other public shareholders, in the following situations:

(a) When additional shares are allotted to Promoters/ Promoter Group, Related Parties of Promoter / Promoter Group, Associates of Promoter / Promoter Group, Subsidiary/(s) of Promoter / Promoter Group of the listed entity (“Promoter shareholders”).

(b) When the Scheme is between a listed entity and another entity involving the Promoter shareholders.

(c) When a holding listed entity acquires equity shares of its subsidiary from the Promoter shareholders and the subsidiary is merged with the holding entity under the Scheme.

(d) Merger of unlisted entity with listed entity, where the resulting voting rights of pre- scheme public shareholders of listed entity will reduce by more than 5% after the merger.

(e) Scheme results in transfer of whole or substantially whole of the undertaking of a listed entity and consideration is not in the form of listed equity shares.

VIII. Compliances subsequent to approval of Scheme by NCLT

The following documents are to be submitted to the stock exchange, after the Scheme is approved by NCLT:

i. Approved Scheme;

ii. Result of voting by shareholders approving the Scheme;

iii. Statement explaining the changes carried out in the Scheme, if any;

iv. Status of compliance of NOC from stock exchange;

v. Application seeking exemption under rule 19(2)(b) of Securities Contract (Regulation) Rules, 1957;

vi. Report on complaints.

Authored by Aishwarya Lakshmi VM

The Securities Exchange Board of India (SEBI) has issued a consultation paper soliciting public comments on or before 10th December 2020, towards the proposed amendments in SEBI (Listing Obligation and Disclosure Requirement) Regulations, 2015 (“SEBI LODR”) regarding the applicability and role of Risk Management Committee. Though the Amendments made pursuant to Shri. Uday Kotak Committee’s recommendation fortified the existing Risk Management structure; SEBI has in the backdrop of Covid-19 felt a need for a more robust framework for businesses to manage the multitude of risks faced by them.

The following are the salient features of the Consultation Paper issued by SEBI –

1. Applicability: The Risk Management Committee (hereinafter “RMC”) is proposed to be expanded and made applicable to top 1000 listed entities based on market capitalization, from the existing number at top 500.

2. Number of Meetings: The RMC shall meet at least twice in a year in contrast to the existing requirement of meeting once a year.

3. Quorum for RMC Meetings: Making the quorum to be uniform with that of the audit committee and NRC (Nomination and remuneration committee), SEBI seeks to bring in mandatory quorum for RMC to be two members or one third of the members of the RMC, whichever is greater; with at least one member of the board of directors in attendance.

4. Seeking Information and Expert Opinion: Just as the audit committee has the power to seek information from any employee and seek outside assistance, the consultation paper enables the RMC also to obtain information from employees and also obtain outside legal or other professional advice and secure attendance of outsiders with relevant expertise, wherever necessary.

5. Roles and Responsibilities: Codification of every aspect seems to be flavor of the season and SEBI has proposed to list out in Schedule II Part D of SEBI LODR, the following as a inclusive list of roles and responsibilities of RMC:

a. Formulating a detailed risk management policy including the framework for identification of risks with a special focus to financial, operational, sectoral, ESG and cyber risks; measures for risk mitigation; systems of internal control and business contingency plans.

b. Monitoring and overseeing the implementation of the policy.

c. Ensuring that systems and processes are in place to monitor and evaluate the risks.

d. Reviewing the policy annually considering the changing dynamics.

e. Keeping the Board informed about nature and content of discussions, recommendations and actions to be taken.

f. Appointing, removing and fixing the remuneration of the Chief Risk Officer (CRO), if any, subject to joint review with the Nomination and Remuneration Committee.

Giving hereunder a comparative snapshot of the four committees under the SEBI LODR:

  Audit Committee

(Reg.18)

Nomination & Remuneration Committee

(Reg.19)

Stakeholder Relationship Committee

(Reg.20)

Risk Management Committee

(in present form –consultation paper is still a proposal)

(Reg.21)

Applicability Every Listed entity. Every Listed entity. Every Listed entity. Top 500 listed entities based on market capitalization.
No. of Members Minimum 3 directors.

 

Minimum 3 directors.

 

Minimum 3 directors. No specification as per SEBI LODR.
Constitution At least 2/3rd being Independent Directors.

 

For a listed entity having outstanding SR Equity Shares: Only independent Directors.

 

All members financially literate.

 

At least one member having financial or accounting or financial management exposure.

 

Chairperson shall be an independent director.

All directors to be Non-Executive directors.

 

At least 50% of the directors shall be independent directors.

 

For a listed entity having outstanding SR Equity Shares, 2/3rd shall be independent directors.

 

Chairperson shall be an independent director.

At least 1 being an independent director.

 

For a listed entity having outstanding SR Equity Shares, 2/3rd shall be independent directors.

 

Chairperson shall be a Non-Executive Director.

Majority shall consist of Board of Directors.

 

For a listed entity having outstanding SR Equity Shares, 2/3rd shall be independent directors.

 

Chairperson shall be a member of the Board; senior executives may be members of the Committee.

Brief outline of the roles and responsibilities Oversight of financial reporting;

 

recommendation of appointment, remuneration and terms of appointment of the Auditors;

 

approval of payment to statutory auditors;

 

reviewing annual financial statements and auditor’s report; reviewing quarterly financial statements;

 

reviewing statement of application of funds;

 

approval for related party transactions;

 

scrutiny of inter-corporate loans and investments; valuation of undertakings or assets etc.

Formulation of a criteria to determine qualifications, positive attributes and independence of directors;

 

recommend a policy to the Board relating to remuneration of Directors and KMP;

 

formulating criteria for evaluation of performance of Independent Director and board;

 

devising a policy on diversity of the Board;

 

recommend remuneration for senior management.

Resolving grievance of security holders;

 

review of measures taken for effective exercise of voting rights;

 

review of adherence to service standards by the Registrar and Share Transfer Agent etc.

No specification as per SEBI LODR.
Minimum number of meetings At least 4 times in a year; not more than 120 days gap between two meetings. At least once a year. At least once a year. At least once a year.
Quorum for meetings 2 Members or 1/3rd of the Members of the Audit Committee whichever is greater, with at least 2 minimum Independent Directors. 2 Members or 1/3rd of the Members of the Audit Committee whichever is greater, with at least 1 Independent Director in attendance. No specification as per SEBI LODR. No specification as per SEBI LODR.
Powers To investigate activities within its scope;

 

To obtain outside expertise and information from employees.

Chairperson may be present at the AGM to answer the questions.

 

However, Chairperson of the AGM to decide who answers the questions.

Chairperson shall be present at the AGM to answer the questions.

 

Subject to delegation by the Board, monitoring and reviewing the risk management plan and other functions, including cyber security.

CONCLUSION: While codification is necessary, SEBI will do well to specify the principles that are to be followed by the RMC and the other committees that are to be constituted under SEBI LODR. The absence of specifying the principles, will only make these committees into a box ticking approach, rather than serving the real objective that they intend to serve.

Authored by Deepika & Priyadharshini

In Pursuance of the Patent (Amendment) Rules 2020 (Revised Rules 2020), the provisions with respect to Priority document and Statement of working were amended and our newsletter on the same can be accessed here: http://eshwars.com/blog/the-department-for-promotion-of-industry-and-internal-trade-dpiit-amends-the-patent-rules-2002/

In furtherance to the revised rules 2020, wide Notification No. G.S.R. 689(E) dated November 4, 2020, Patents (2nd Amendment) Rules, 2020 has come into effect.

In summary, the key amendments have an impact primarily on the following matters and the same has been set out in comparison with that of the previous rules:

1. Rule 7 and Sub rule 3 – Fees- Small entities are no longer required to pay any difference in scale of fees if they cease to be a small entity due to the lapse of period after filing a patent application. It is pertinent to note that startup entities already had this privilege. Hence sub-rule (3A) and sub-rule (3B) has been omitted and new explanation has been inserted accordingly.

2. Table I of the FIRST SCHEDULE– The applicable fees with respect to small entities for filing and prosecuting Indian Patent applications have been significantly reduced and it has been made at par with that of natural persons/ startup entities.

3. Sub-rule (5) of rule 24C– A request for expedited examination filed by a Small entity shall not be questioned merely on the ground that it ceases to be a small entity due to lapse of period or crossing of the financial threshold limit as notified by the competent authority. It is pertinent to note that startup entities already had this privilege.

According to the recent Patents (2nd Amendment) Rules, 2020, the privileges offered to startups are extended to small entities too.

Authored by Ammu Brigit

On 6th July 2020, the National Consumer Disputes Redressal Commission (NCRDC) in Vinod Khanna vs. R.G Stone Urology and Laparoscopy Hospital & Ors (NCRDC Order), pronounced that obtaining consent in a pre-printed consent form is an unfair trade practice. Our article on analysing this NCRDC Order can be read at http://eshwars.com/blog/use-of-pre-printed-consent-forms-by-hospitals-and-doctors-time-to-relook/.  This NCRDC Order was of great concern to medical fraternity as it was uncertain as to how the consent of the patients needs to be obtained. RG Stone Urology and Laparoscopy Hospital (“Petitioner”) filed a civil appeal before Hon’ble Supreme Court to set aside the NCRDC Order. The Petitioner challenged the NCRDC Order on the basis of the following issues:

a. Whether pre -printed consent forms used by hospitals be considered as an unfair trade practice under Consumer Protection Act 1986?

b. Whether NCRDC has the jurisdiction to pass an order in relation to pre-printed consent forms when the complaint filed was for medical negligence?

c. To what extent can hospital/doctor disclose the risk involved in a medical procedure?

The Hon’ble Supreme Court heard the contentions of the Petitioner on 18th November 2020 and has stayed the direction in the NCRDC Order with regard to the pre-printed forms pending the adjudication of the appeal. The copy of the order of the Hon’ble Supreme Court is available at  https://main.sci.gov.in/supremecourt/2020/16143/16143_2020_41_11_24729_Order_18-Nov-2020.pdf .

Authored by Ammu Brigit

The Insurance Regulatory and Development Authority of India (IRDAI) released few guidelines and circulars in relation to health insurance with the intention to bring in uniformity in the health insurance industry and to include certain illness within the cover of health insurance.

Time limit for settlement of insurance claims

IRDAI released Guidelines on Standardisation of General Terms and Clauses in Health Insurance Policy Contracts (hereinafter referred to as “Guidelines”) on 11th June 2020 under the Insurance Act 1938 along with IRDAI (Health Insurance) Regulation 2016 for bring in uniformity in with regard to general terms and clauses in health insurance industry. The Guidelines is applicable to all general and health insurers offering indemnity-based health insurance. Effective from 1st October for all the health insurance filing on or after 1st October 2020, the Guidelines requires the insurers settle or reject a claim within 30 days from the date of receipt of the last necessary document. In case of delay in payment of the claim amount, the health insurance company to pay interest of 2% to the policyholder from the date of receipt of last necessary document. The Guidelines also provides that the insurer cannot reject a claim of a policyholder who has paid a premium for eight years except for proven fraud and permanent exclusions.  The Guidelines also contains provisions regarding multiple polices, termination of policy by the policyholder or the insurers, policy portability, revision of terms of policy contract with prior intimation to the policy holder etc. The Guidelines document is available at   https://www.irdai.gov.in/ADMINCMS/cms/whatsNew_Layout.aspx?page=PageNo4157&flag=1 .

Inclusion of Mental Illness, HIV/AIDS, Physical Disability under Health Insurance Cover

IRDAI through its circular dated 2nd June 2020 informed all insurers to comply with the IRDAI (Health Insurance) Regulation 2016 to comply with HIV and AID Prevention and Control Act 2017 and Mental Healthcare Act 2017 and instructed all insurers to include policies for persons with disabilities, persons affected with HIV/AID and persons with mental illness diseases.

Telemedicine to be covered under Health Insurance

In a circular dated 11th June 2020, IRDAI has asked all insurers to allow telemedicine wherever medical consultation with a medical practitioner is allowed in the terms and conditions of the policy contract and to make telemedicine a part of the claim settlement policy of the insurers. This is pursuant to the release of Telemedicine Practice Guidelines by Medical Council of India on 25th March 2020.

Authored by Vignesh Kumar

INTRODUCTION:

The Securities and Exchange Board of India (hereinafter “SEBI”) vide order dated 23rd October 2020 debarred Birla Pacific Medspa Ltd. (hereinafter “the Company”), its Directors and key managerial personnel (hereinafter collectively referred to as “the Noticees”) from accessing the securities market and dealing in securities directly or indirectly for a period of two years in connection with diversion, misutilisation and siphoning of funds raised through Initial Public Offer (“IPO”). This comes at the backdrop of the investigation by SEBI conducted covering the period July 07, 2011 to July 15, 2011 (hereinafter “Investigation Period”).

THE IPO:

The Company which operated health care centres made an IPO in 2011 for establishing 55 more healthcare centres which was expressly stated as the primary object in prospectus. The issue size of Rs. 65.17 crores issue was oversubscribed by 1.18 times, and the shares on day of trading i.e. 7th July 2011 increased by 154% more than the opening price.

ALLEGED VIOLATION:

1. IPO proceeds worth Rs. 14 Crores were diverted and mis-utilized by the Company to support the price of its own shares on the listing day. The proceeds were channelled through two layers of entities.

2. IPO proceeds worth about Rs. 33.4 Crores were disbursed to certain entities under the pretext of advances towards work contracts for IPO objectives, but in fact, no substantial work contracts were executed, rather the funds disbursed remained unreturned to the Company and thus it was alleged that the said proceeds were mis-utilized and siphoned off.

3. Proceeds of IPO worth about Rs. 31 Crores were disbursed to group companies as ICD’s [at interest of 15% repayable on demand in seven (7) days], the decision for which was taken at a board meeting held four (4) days after the IPO, [citing adverse macro-economic factors as reason for not establishing 55 more health care centres] which was in contrast to the objects of IPO or the interim use of funds as stated in the Prospectus. The Prospectus permitted interim deployment of proceeds as investment in liquid instruments only and did not permit such deployment of funds as ICD’s. Hence, it was alleged that the act of approving the deployment of funds as ICD’s in the board meeting held 4 days after the IPO tantamounted to mis-statement in prospectus and diversion and mis utilisation of IPO proceeds.

4. Thus, it was alleged that the conduct of the Company amounted to mis-statement in prospectus to defraud the investors and the Company and signatories to the Prospectus were alleged to have violated Regulation 57(1)[1], Regulation 57(2)(a)[2] r/w Clause 2 (XVI) (B) (2) of Part A of Schedule VIII[3] of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 [ “SEBI (ICDR) Regulations”].

[Note: With respect to the alleged violations specified in 1 and 2 above, separate adjudication proceedings were commenced by SEBI, and in this Order was limited to examine if there was a violation of the above provisions in respect of the decision taken at the board meeting to provide ICDs to group companies.]

DEFENCE OF THE NOTICEES:

1. There were 12 Noticees in all in the SCN. The Company did not respond on the merits of the SCN, the Chairman had raised certain contentions to the allegations in the SCN. It was only the other Noticees amongst whom was a MD, General Counsel of the group companies, Independent Directors & Company Secretary, who had responded to the SCN on merits.

2. The summary of defences here are those by the 10 Noticees who responded to the SCN.

3. ICD’s can be construed as a liquid instrument since they are issued on the condition that such ICD’s are repayable on demand by giving notice of 7 days.

4. As stated in the prospectus money pending utilisation from IPO would be invested in interest or dividend bearing liquid instruments including deposits with banks etc. The word “including” in the IPO objects bear a wider meaning and include all types of instruments which can have character of liquidity and thus the objects of the IPO should be understood and construed with wider interpretation.

5. Some of Noticees contended that the “Risk Factors” heading in prospectus contemplated that IPO proceeds can be deployed by the management of the Company as ICDs to the group companies.

6. Few Noticees who were non-executive directors defended that they were not involved in the day to day decision making of the Company, and that SEBI (ICDR) Regulations does not provide vicarious liability (on acts of the company) on independent or non-executive directors, and it is only section 27 of SEBI Act, which provides vicarious liability in respect of criminal offences.

FINDINGS IN THE ORDER:

1. The SCN relied on the prospectus and minutes of the board meeting as the principal evidence to level the charge on mis-statement in prospectus, the contents of which were not disputed by the Noticees.

2. The Prospectus had contained a statement that the management doesn’t intend to provide loans to group companies, except in case of exigencies.

3. Financial exigency ought to be seen from the perspective of the group company and thus advancing ICD’s to group companies citing macro-economic factors did not substantiate a crisis of exigency.

4. The board of the Company, citing macro-economic conditions decided to defer setting up of healthcare centres, within 12 days of signing the Prospectus.

5. The Prospectus did not state the fact that unutilised funds shall be invested in ICD’s of companies, and it was only in the minutes the term corporates was used.

6. ICD’s do not qualify to be liquid assets and financial instruments, and they are private lending and borrowing arrangements between entities.

7. 50% of the IPO proceeds were deployed as ICD’s.

8. The allegation in the SCN pertains to matters decided at the board meeting, and it is not necessary for a director to be involved in the day to day affairs of the Company.

9. For the years 2011-12 and 2012-13, the board of the Company has as part of its financial results submitted report on progress of utilisation of the IPO proceeds, and shows as if expenditure was being incurred towards fulfilling the IPO objects. This statement did not reveal that ICD’s were made by the Company.

10. The auditor of the Company has stated in his report that there was no sufficient audit evidence to verify end use of funds.

11. The audit committee which under Clause 49(II)D5A of the erstwhile Listing Agreement had the specific responsibility of reviewing the statement of utilisation of funds raised through public issue, and the audit committee had also reviewed the quarterly financial results. Hence those directors who were on the audit committee cannot claim that they did not have knowledge of diversion of funds by the executive management.

12. The Company was to have set-up 15 healthcare centres by March 2012, but it had not set-up even one. None of the Independent /Non-executive directors had raised any concern about this at the board meetings, nor reported the same to the auditors or the regulators.

13. The Noticees were not being held responsible vicariously but were held responsible for having signed the Prospectus that contained mis-statements, and for failure to make material disclosures in it.

14. One of the Directors had resigned from the board in about 40 days of the IPO. The Company Secretary was found to have had knowledge about the irregularities in the IPO fund deployment, but was found not to have had the decision making power to approve resolutions of the board, and hence was considered on a different footing from other Noticees.

CONCLUSION:

1. The Whole-time Member distinguished the reliance placed by few Noticees to the decision of SAT in P.G. Electroplast Ltd. v. Securities and Exchange Board of India (Appeal No. 281 of 2017 decided on August 2, 2019), wherein specific non-disclosure of ICD’s in interim use of funds was construed to be `partial non-disclosure of material information’ and a mere technical violation, inter alia on the ground that the merchant banker who was informed of the same failed to incorporate it in the prospectus, which was not the case in the Company, as the board had passed a resolution to give ICD’s.

2. The Whole-time Member concluded that the statements made in the Prospectus relating to `Objects of issue’ were not true, as no healthcare centre was set-up, even though Prospectus specified setting up such centres, and that the Prospectus was materially deficient on disclosure of `interim use of funds’, he held that the Prospectus contained untrue statements to that extent.

3. Except for the director who had resigned in about 40 days of the IPO, the WTM restrained the other directors from accessing the/dealing in the securities market for a period of 2 years. The company secretary was also restrained for a shorter duration of 6 months, and hence guilty of violation of Regulation 57(1), Regulation 57(2)(a) r/w Clause 2 (XVI) (B) (2) of Part A of Schedule VIII of SEBI (ICDR) Regulations, 2009.

[1] Regulation 57(1)The offer document shall contain all material disclosures which are true and adequate so as to enable the applicants to take an informed investment decision.

[2] Regulation 57(2)(a)  – The red-herring prospectus, shelf prospectus and prospectus shall contain the disclosures specified in Schedule II of the Companies Act, 1956 and the disclosures specified in Part A of Schedule VIII, subject to the provisions of Parts B and C thereof.

 [3] Clause 2 (XVI) (B) (2) of Part A of Schedule VIII – The signatories shall further certify that all disclosures made in the offer document are true and correct.

 

Authored by Aishwarya Lakshmi VM

Applicant: Redington (India) Ltd. Date of the guidance: 22.10.2020

Factual Background:

i. The Applicant has 57 overseas subsidiaries, of which 2 are wholly owned subsidiaries (WOS) and the remaining 55 are step-down subsidiaries. Few step-down subsidiaries are not required to get annual financial statements audited and some subsidiaries / step-down subsidiaries did not have the requirement to constitute a board, and few did not have the requirement to conduct board meetings and prepare minutes for them.

ii. The Applicant had submitted in the context of regulation 46 of the SEBI (LODR) Regulations, 2015, two of its foreign WOS which are required by their national laws to prepare Consolidated Financial Statements (CFS) in accordance with International Financial Reporting Standards and get them audited.

Guidance sought:

a) Citing the relaxation under S. 136(1) of the Companies Act, 2013, wherein the MCA has specified that it would suffice if the unaudited financial statements are placed on the website in case of absence of regulatory requirement of having the financial statements audited, the Applicant sought to know, if it would be sufficient compliance under Reg. 46(2)(s) of SEBI LODR, if it places the CFS of the two foreign WOS on its website.

b) Likewise, the Applicant had sought to know, in the context of regulation 24(3) of SEBI LODR, if the two of its foreign WOS prepare minutes of their board meetings, considering and including therein the significant or material issues and events, which would have a bearing on the interest of investments made in these subsidiaries, and provide the same to the Applicant, for it to be placed before its board.

Provisions Involved

Regulations 24[i] and 46[ii] of SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015.

Informal Guidance by SEBI:

i. With respect to the adequacy of compliance under Reg. 46 of SEBI LODR, the guidance referred to an earlier informal guidance dated 30th May 2019 sought by HCL Technologies Limited, and required the Applicant to follow the same, as its query was substantially similar.

ii. To the queries of HCL Technologies, SEBI had with respect to Reg. 46, in respect of the financial statements of a foreign subsidiary, specified:

a) 46(2)(s) would be complied, where the CFS of the foreign subsidiary that is required to consolidate its financial statements, is placed on its website.

b) If the law of incorporation of the foreign subsidiary does not require its financial statements to be audited, then it would suffice if unaudited financial statements are placed on its website.

c) Where the financial statement is in a language other than English, then a translated copy of the same shall also be placed on the Website.

iii. With regard to the query of the Applicant in respect of Reg. 24(3), specified that if a listed entity has a foreign subsidiary:

a) if the laws of incorporation of the foreign subsidiary require board meetings to be conducted, it is sufficient if the minutes of such board meetings are placed before the board of the listed entity;

b) if the laws of incorporation of the foreign subsidiary does not require board meetings to be conducted, it is sufficient if there is periodic reporting of all significant transactions and arrangements entered into by the subsidiary.

The letter of SEBI can be read at: https://www.sebi.gov.in/enforcement/informal-guidance/oct-2020/informal-guidance-issued-to-redington-india-ltd-regarding-reg-46-and-24-of-sebi-lodr-regulations-2015_47980.html

As per the Informal Guidance [Scheme] 2003 of SEBI, the guidance provided is applicable only to the Applicant, and is should not be construed as a conclusive decision or determination of any question of law or fact by SEBI, and is also not an Order u/S 15T of SEBI Act, 1992.

[i]Regulation 24, LODR:

(2) The audit committee of  the  listed  entity  shall  also  review  the  financial  statements,  in particular, the investments made by the unlisted subsidiary.

(3) The minutes  of  the  meetings  of  the  board  of  directors  of  the  unlisted  subsidiary  shall  be placed at the meeting of the board of directors of the listed entity.

(4)The  management  of  the unlisted subsidiary  shall  periodically  bring  to  the  notice  of  the board of  directors  of  the  listed  entity,  a  statement  of  all  significant  transactions  and arrangements entered into by the unlisted subsidiary.

Explanation.-For  the  purpose  of  this  regulation,  the  term  “significant  transaction  or arrangement” shall mean any individual  transaction  or  arrangement  that  exceeds  or  is likely to exceed ten percent of the total revenues or total expenses or total assets or total liabilities,  as  the  case  may  be,  of  the  unlisted subsidiary  for  the  immediately preceding accounting year.

[ii]Regulation 46, LODR: (2)The listed entity shall disseminate the following information under a separate section on its website:

(a) to (r) …..

(s)  separate audited financial statements of each subsidiary of the listed  entity in respect of  a relevant financial year, uploaded at least 21 days prior to the date of the annual  general meeting which has been called to inter alia consider accounts of that financial year.

Authored by Padma Akila R

Date(s) of Order  20th October 2020
Purported contravention committed 1.     Promoters and directors of Kirloskar Brothers Limited (“KBL”) had traded in the scrip of KBL while in possession of unpublished price sensitive information (“UPSI”) and got wrongfully benefitted by avoidance of losses

2.      Promoters and directors of KBL had submitted incorrect undertakings/ declarations to KBL

Persons charged and who are they Alpana R Kirloskar, Arti Atul Kirloskar, Jyotsna Gautam Kulkarni, Rahul Chandrakant Kirloskar, Atul Chandrakant Kirloskar and late Gautam Achyut Kulkarni. – “Noticee set 1

[Promoters and/or Directors of KBL]

Nihal Gautam Kulkarni, AR Sathe and AN Alawani – “Noticee set 2”

[All Directors of Kirloskar Industries Limited (“KIL”)]

Sanjay Kirloskar (As Trustee of Kirloskar Brothers Ltd. Employees Welfare Trust Scheme) [CMD of KBL], Pratima Sanjay Kirloskar [Wife of CMD]- “Noticee set 3”

Prakar Investments Private Limited, Karad Projects and Motors Limited (formerly known as Kirloskar Construction and Engineers Ltd.) – “Noticee set 4”

[Promoters of KBL]

Companies in which insider trading and fraud had been committed Kirloskar Brothers Limited, Kirloskar Industries Limited

BACKGROUND OF THE CASE:

1. SEBI had received various complaints alleging insider trading and bad corporate governance practices in the context of KBL. Pursuant to this, SEBI conducted investigation during March 2010 to April 2011 in the matter relating to dealings in the scrip of KBL to ascertain possible violation of the insider trading rules and prohibition of fraudulent and unfair trade practices regulations.

2. UPSI: SEBI identified the following two as UPSI, on the basis of which the Noticees had committed wrongful insider trading were:

(i) Capital loss of the investment i.e. loans / advances given to Kirloskar Construction and Engineers Ltd. (“KCEL”), a wholly owned subsidiary of KBL (“UPSI 1”).

The loan to KCEL was written off in the financial results of quarter and year ended 31st March 2011, and the results was published on 26th April 2011.

At KBL’s board meeting held on 8th March 2010, a board note was presented about KECL, which was incurring losses for last 3 years, based on which a viability report was prepared and circulated amongst the promoters of KBL. At the board meeting held on 3rd September 2010, the board of KBL after considering three (3) options decided to sell KECL, and thereafter at the meeting held on 26th April 2011, the loan to KECL was decided to be written off.

Hence, SEBI considered the time period of UPSI  1 was from March 8, 2010 to April 26, 2011.

(ii) The Financial results for the quarter July – September 2010 August 06, 2010 to October 28, 2010 (UPSI 2). The time period of UPSI 2 was from August 06, 2010 to October 28, 2010.

3. As per SEBI’s investigation, four (4) from the Noticee set 1, had obtained pre-clearance for their trades, while in possession of the above UPSI, however had given undertaking that they had no access to UPSI. Hence, SEBI alleged that the declarations / undertakings given by them were incorrect, and they had violated Part A, of clause 3.3 of Schedule 1 i.e. Model Code of Conduct for Prevention of Insider Trading, specified in Regulation 12(1) of PIT Regulations 1992.

4. The allegation was that Noticee set 1, had sold their shares to KIL, another promoter entity of KBL, after obtaining pre-clearance while they were in possession of the above identified UPSI. Likewise, Noticee set 3 had sold their shares to Noticee set 3 – who were also promoters of KBL.

5. The other allegation of fraud was that the Noticees set 1 and 2 had induced KIL to buy shares from KBL’s promoters, thereby aiding them to sell the shares of KBL to KIL at a time disadvantageous to KIL and its minority shareholders.

Note: The regulation that was prevalent at the time of commission of the above purported offence was PIT Regulations, 1992 and not PIT Regulations, 2015.

CONTENTION OF THE NOTICEES:

1. The Noticees had submitted that the decision to sell KCEL and the decision to write off advances were completely distinct and therefore the information about write off came into existence only on April 26, 2011 and not on March 08, 2010 and that the option to write-off the loans advanced to KCEL was considered or discussed by the KBL for the first time in its Board meeting dated April 26, 2011. Therefore, the discussions pertaining to capital loss of investment/advances given to KCEL during the period from March 8, 2010 to April 26, 2011 cannot be alleged to be UPSI.

2. Few among the Noticees had submitted that, the SCNs did not even allege that the said Noticees have dealt in the shares of KBL “on the basis of” any UPSI following this the Noticees had placed reliance in the matter of Mrs. Chandrakala vs Adjudicating Officer SEBI dated January 31, 2012 wherein Hon’ble SAT had held that the prohibition contained in Regulation 3 of the PIT Regulations, 1992 applies only when the insider has traded “on the basis of” any unpublished price sensitive information. Noticees had also placed reliance in the case of Manoj Gaur vs SEBI dated October 03, 2012, wherein the Hon’ble SAT had set aside the Order of SEBI since the trading pattern in that case reflected that the trades could not be said to be “on the basis of” the alleged UPSI.

3. The Noticees had submitted that both buyers and sellers had the same UPSIs i.e, KIL was a shareholder and promoter of KBL, and KBL was a promoter of KIL a fact that was publicly disclosed and since both buyers and the sellers in the October 06, 2010 transaction were all promoters of KBL, it could not be alleged that there was any suppression or deception or fraud involved at all.

4. With regards to UPSI 2 the Noticees had submitted that PSI included “periodic financial results” of a company computed only on completion of each quarter and not monthly financial position or interim monthly financial information of a company and that any other information which could be connected and eventually become part of the financial results cannot be considered to be equivalent to the financial results.

5. The Noticees had argued that, Section 372A of the Companies Act, 1956 permitted the company to use 60% of its paid capital and free reserves or 100% of its free reserves, whichever was more, to acquire the shares of any other body corporate and that there was no allegation that KIL acquired the shares in breach of Section 372A of the Companies Act, 1956. It was further argued that what was permissible by law cannot therefore, be a device, scheme or artifice which was fraudulent within the meaning of Regulation 2(1)(c) of PFUTP Regulations.

6. It was argued by the Noticees, that said pre-clearance was sought in a bonafide manner believing that they were not in possession on any UPSI. they had further submitted that the compliance officer of KBL had erred in granting the pre-clearance to the said Noticees.

FINDINGS BY THE WOLE TIME MEMBER (“WTM”):

1. The Whole-time Member (“WTM”) noted that the Noticees’ interpretation of the SCN was erroneous in terms of what UPSI 1 was alleged to be, and that the SCN had clearly articulated that the information on the capital loss of the investment/advances given to KCEL was alleged to be UPSI. However, the Noticees had interpreted that the write off of the loans to KCEL in the books of accounts of KBL to be UPSI, which was not the case. The WTM clarified that the UPSI was not the information on the event of writing off the loan or the event of deciding to sell KCEL, but the information / knowledge that a significant part of the capital was lost and asking for a viability report on KCEL before finally deciding as to how to deal with it, did not detract from KBL’s knowledge / understanding that a significant part of the capital invested in KCEL was lost. The WTM further stated that the capital loss of investment/ advances given to KCEL by KBL had occurred much earlier than claimed by the Noticees and the directors of KBL had access to this information in March 2010 itself when the note on KCEL outlining its extremely poor financial health and estimated sale value (at a loss) was circulated to the directors of KBL and thus, there was no merit in the argument of the Noticees that the UPSI came into existence for the first time in April 2011.

2. The WTM noted that, for the purpose of imposition of penalty under Section 15G of SEBI Act, 1992, the requirement was to prove that insider had traded not only “while in possession of” any UPSI but also “on the basis of” any UPSI. However, there was a presumption, albeit rebuttable, that if trading had been done “while in possession of” UPSI, then it was being done “on the basis of” UPSI. Also, Supplementary SCNs dated July 24, 2020 had referred to the Section 15G of SEBI Act, 1992. The WTM distinguished this matter with that of Chandrakala case and Manoj Gaur case on the that the trading pattern of the Noticees was not similar to the specific trading pattern of entities referred in Chandrakala case and Manoj Gaur case.

3. The WTM noted that said exemptions from violation of insider trading i.e. inter-se transfer between promoters and transactions between buyer and seller, who have the same UPSI is not available under the PIT Regulations, 1992 and the same was given under the PIT Regulations, 2015 subject to certain conditions. The WTM further noted that the transaction in question in this matter had happened in the year 2010 when PIT Regulation, 1992 was in effect and upon perusal of Regulation 3 of PIT Regulations, 1992, the said regulations do not exempt any inter-se transfer between promoters or transactions between buyer and seller, who have the same UPSI.

4. With respect to the submissions made by the Noticees with regard to UPSI 2, the WTM reasoned that PSI meant any information which related directly or indirectly to a company and which if published was likely to materially affect the price of securities of the company. Several price sensitive pieces of information relating to the financials of the company may arise prior to the publication of the financial results and at the stage of publication, several price sensitive pieces of information relating to the financial condition of the company were integrated and were published as quarterly results which in itself was deemed to be PSI. The WTM observed that any particular piece of PSI, after its origin, may have been in possession of various persons for legitimate purpose and that the publication of such PSI may happen only after a period of time but it did not take away the fact that the pieces of information may have been price sensitive on their own, even while they were unpublished in the form of periodic financial results and It was for these reasons that Promoters / Directors were often being referred to as “perpetual insiders” because they had continuous access to flow of information that had a bearing on the periodic financial results disclosed to the public.

[Note: This observation is to be taken note of, and in the context of the record keeping that has been mandated by SEBI in PIT Regulations, 2015, assumes significance.]

5. The WTM noted that the basis of allegation against the directors of KIL is that before the KIL board meeting on July 28, 2010 (wherein the decision to buy KBL shares from Promoter/directors of KBL was taken by KIL), the directors of KIL had been aware of the precarious financial condition of KCEL & its impact on the financials of KBL in terms of capital loss (UPSI 1) and yet they had induced KIL to buy shares of KBL from the promoters of KBL as well as of KIL. Therefore, concluding that Noticee set 2 had teamed up with each other and had committed fraud on KIL and public / minority shareholders of KIL.

6. The WTM noted that while the law has permitted certain activity, the said activity had to have been performed as permitted by law and that the PFUTP Regulations prohibited also the permissible activity if done in a fraudulent manner. The WTM rejected the contentions of the Noticees in this regard and stated that in this case, permissible activity of investment was prevented as the same was being done while in possession of the non-public information of capital loss. The WTM further reasoned that the board of directors were vested with the widest powers to make corporate policy, take decisions on investments, appointments of directors etc. if they found that such an action is for the benefit of and in the interest of the company, which also involve the interest of the minority shareholders and such powers are to be discharged in good faith. Further, directors performed functions similar to trustees in respect of the assets of the company as well and If a decision was not taken in good faith and not for the benefit of / in interest of the company, then the director, was liable for inducing the company to act to its own detriment and was also liable for treating minority shareholders in an unfair manner.

7. As far as the argument related to pre-clearance was concerned, the WTM noted that the question of determination whether the compliance officer of KBL had erred in granting the pre-clearance did not arise as the same was not part of the allegation in the SCN and that the Noticees had applied for pre-clearances on September 28, 2010 i.e. prior to the transaction dated October 06, 2010. The WTM rejected the Noticees, arguments by stating that it was irrelevant and what was relevant for determination of violation of code of conduct relating to pre-clearance was whether the said application for pre-clearance was made at the time when the applicant did not have the UPSI and an undertaking to that effect was given for application to get the pre-clearance, which clearly wasn’t the case as the Noticees were in possession of UPSI and had also submitted incorrect declaratons thereby violating Part A, of clause 3.3 of Schedule 1 i.e. Model Code of Conduct for Prevention of Insider Trading, specified in Regulation 12(1) of PIT Regulations 1992.

DECISION OF THE WTM:

a) Noticees set 1 and 3, were disgorged of the gains made by them and they were restrained from dealing in the securities market for different periods of time.

b) Noticees set 2 were held to have induced KIL to buy shares from the promoters of KBL and thereby aided the promoters to sell the shares of KBL to KIL to the detriment of KIL at least in terms of timing of the trade in KBL shares (before public disclosure of UPSI). Thus, Noticees had caused unfair treatment to the minority shareholders of KIL in a fraudulent manner and violated the provisions of Section [1]12A (a), (b), (c) of SEBI Act, 1992 read with [2]Regulations 3 (a), (b), (c), (d) and [3]4(1) PFUTP Regulations as alleged in the respective SCN and they were also restrained to deal in the securities market for different periods of time.

c) With respect to the few Noticees in set 1, and Noticee set 3, they were held to have submitted incorrect declarations / undertakings to KBL while obtaining pre-clearances for their transaction and therefore, violated Part A, of clause 3.3 of Schedule 1 i.e. Model Code of Conduct for Prevention of Insider Trading, specified in [4]Regulation 12(1) of PIT Regulations 1992.

[1] 12A- No person shall directly or indirectly—

(a) use or employ, in connection with the issue, purchase or sale of any securities listed or

proposed to be listed on a recognized stock exchange, any manipulative or deceptive

device or contrivance in contravention of the provisions of this Act or the rules or the

regulations made thereunder;

(b) employ any device, scheme or artifice to defraud in connection with issue or dealing in

securities which are listed or proposed to be listed on a recognised stock exchange;

(c) engage in any act, practice, course of business which operates or would operate as fraud

or deceit upon any person, in connection with the issue, dealing in securities which are

listed or proposed to be listed on a recognised stock exchange, in contravention of the

provisions of this Act or the rules or the regulations made thereunder;

[2] 3- Prohibition of certain dealings in securities

No person shall directly or indirectly—(a)buy, sell or otherwise deal in securities in a fraudulent manner;

(b)  use or employ, in connection with issue, purchase or sale of any security listed or proposed  to  be  listed  in  a  recognized  stock  exchange,  any manipulative  or  deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under;

(c)  employ any device, scheme or artifice to defraud in connection with dealing in or issue  of  securities  which  are  listed  or  proposed  to  be  listed  on  a  recognized  stock exchange;

(d)  engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under

 [3] 4- Prohibition of manipulative, fraudulent and unfair trade practices

  • Without prejudice to the provisions of regulation 3, no person shall indulge in a 3[manipulative,] fraudulent or an unfair trade practice in securities [markets].

[4] 12- (1) All listed companies and organisations associated with securities markets

(a)…

(b)…

(c)…

(d)…

(e)…

shall frame a code of internal procedures and conduct as near thereto the Model Code specified in

Schedule I of these Regulations 45[without diluting it in any manner and ensure compliance of the

same].

Authored by Aishwarya Lakshmi VM

Applicant: KP Capital Advisors Pvt. Ltd. Date of the guidance: 19.08.2020

Factual Background

 (i) The Applicant is a Category I Merchant Banker and thus an ‘Intermediary’ within S.12 of the SEBI Act, 1992.

(ii) Under the Applicant’s Code of Conduct pursuant to the SEBI (Prohibition of Insider Trading) Regulations, 2015, the compliance officer maintains a ‘Restricted List’ containing companies who are their clients.

(iii) The employees and designated persons of Applicant can trade in the ‘Restricted List’ companies, only as per its Code of Conduct and the PIT Regulations.

Guidance sought

1. Can trades in scrips other than in the `Restricted List’ be outside the purview of PIT Regulations?

2. Can Compliance Officer share the ‘Restricted List’ with Designated persons, so that they can know the scrips that they can trade?

Provisions Involved

 Regulations 9(1) of SEBI (Prohibition of Insider Trading) Regulations, 2015[1] (“PIT 2015’) read with Clause 5 of Schedule C[2] of PIT 2015.

Informal Guidance by SEBI

1. Interpreting the provisions involved, SEBI in its informal guidance stated that the Compliance Officer is bound to monitor trading of Designated Persons in all kinds of securities. Such trading is subject to the pre-clearance by the Compliance Officer(s) above a certain value threshold as decided by the board / head of the organization of the intermediary.

2. With respect to sharing of the list, SEBI on a reading of clause 5 of Schedule C, stated that sharing the restricted list with the designated persons would undermine the requirement of maintaining confidentiality of restricted list as stipulated in PIT Regulations, as it is to be maintained by the Compliance Officer on a confidential basis for approving / rejecting applications made for pre-clearance of trade.

The letter of SEBI can be read at: https://www.sebi.gov.in/sebi_data/commondocs/aug-2020/IG%20Let%20by%20SEBI%20KP_p.PDF

As per the Informal Guidance [Scheme] 2003 of SEBI, the guidance provided is applicable only to the Applicant, and is should not be construed as a conclusive decision or determination of any question of law or fact by SEBI, and is also not an Order u/S 15T of SEBI Act, 1992.

[1] Reg. 9(1), SEBI (PIT) Regulations, 2015: The  board  of  directors  of  every  listed  company  and the  board  of  directors  or head(s) of the organisation of every intermediary shall ensure that the chief executive officer or managing director shall formulate a code of conduct with their approval to regulate, monitor and  report  trading  by  its designated  persons  and  immediate  relatives  of  designated  persons towards achieving compliance with these regulations, adopting the minimum standards set out in Schedule B (in case of a listed company) and Schedule C (in case of an intermediary) to these regulations, without diluting the provisions of these regulations in any manner.

Explanation – For  the avoidance  of  doubt  it  is  clarified  that  intermediaries,  which  are  listed, would be required to formulate a code of conduct to regulate, monitor and report trading by their  designated  persons,  by  adopting  the  minimum  standards  set  out  in  Schedule  B  with  respect  to trading in their own securities and in Schedule C with respect to trading in other securities.

[2] Clause 5, Schedule C, SEBI (PIT) Regulations, 2015: The compliance officer shall confidentially maintain a list of such securities as a “restricted list” which shall be used as the basis for approving or rejecting applications for pre-clearance of trades.

Authored by Lakshmi Rengarajan

SEBI had issued the Frequently Asked Questions (“FAQs”) on SEBI (Prevention of Insider Trading) Regulations, 2015 (“PIT Regulations”) on 08th October 2020. The FAQs provide the following clarifications on various aspects under PIT Regulations.

1. No Pre clearance required for excise of employee stock options

It is clarified that the issue and exercise of employee stock option is covered under the provision of SEBI (Share Based Employee Benefits) Regulations, 2014, hence pre clearance under PIT Regulations is not required to be complied with in case of the exercise of the option. However this exemption does not include the sale of shares by the employees after the exercise of the stock option.

2. Foreign designated persons, are required to comply with PIT regulations while trading in ADRs and GDRs

 Clarifying that the provisions of PIT Regulations, 2015 are applicable to the trading of American Depository Receipts (ADRs) and/ or Global Depository Receipts (GDRs) of an Indian Listed Company by a designated person(s) of that company who is foreign national. SEBI has clarified that such designated person(s) should also comply with the code of conduct under the PIT Regulations. Further SEBI also suggests the usage of a unique identifier analogous to PAN for the purpose of requisite disclosures in relation such foreign designated person(s).

3. Information that is to be maintained about designated person who is a fiduciary or an intermediary, in the digital database.

 With respect to designated persons who are either fiduciaries or intermediaries, SEBI has clarified to maintain the following information in the structured digital database:

(i). Details of the Unpublished Price Sensitive Information (“UPSI”);

(ii). Details of persons with whom such UPSI is shared (along with their PANs/other unique identifier) and details of persons who have shared the information.

It has also clarified that the fiduciary or intermediary of the Listed Companies should also maintain digital database internally containing the above mentioned details of designated person.

4. Collection and maintenance of information in case of a designated person who resigns from the company.

SEBI has required listed companies to make efforts to maintain updated address of a resigned designated employee for a period of one year after his resignation and preserve the data of such persons for a period of five years.

Authored by Aishwarya Lakshmi VM & Padma Akila R

Forum Madurai Bench of the Hon’ble Madras High Court,

Order passed by Hon’ble Justice G. R. Swaminathan.

Purported contravention committed Credit Rating Agencies downgrading client’s rating while disregarding the Covid-19 relaxation norms provided by SEBI and RBI.
Persons against whom the petition was filed Union of India (1st Respondent),

Reserve Bank of India (2nd Respondent),

India Rating and Research Private Ltd. (3rd Respondent),

SEBI (4th Respondent) (Suo motu impleaded by the Hon’ble Judge).

BACKGROUND OF THE CASE:

1. Writ petitioner, Mahasemam Trust is a registered public trust and a Non-Banking Finance Company (NBFC)and its activities included micro-financing women Self Help Groups. The petitioner is a client of the 3rd respondent which is a credit rating agency(CRA) which had downgraded the petitioner’s bank loans’ rating to ‘IND BB+’ from ‘IND BBB-‘The Petitioner alleged that their track record was not taken into consideration and the downgrading of rating will result in deviations from the prospective targets of the Petitioner.

2. Since COVID outbreak had caused widespread disruption, RBI came out with its policy package vide circular dated 27.03.2020 which permitted the lending institutions to grant a moratorium of three months on payment of all instalments falling due between 1st March 2020 and 31st May, 2020, which was further extended from 31st May 2020 to 30th September, 2020.

3. SEBI had also issued policy Circular dated 30.03.2020 setting out relaxation norms. Pursuant thereto, the petitioner had also granted the benefit of the moratorium to all the joint liability Self Help Groups, in order to enable them to tide over the economic fallout arising out of the pandemic disruption.

4. According to the petitioner, the 3rd Respondent had downgraded the petitioner’s rating disregarding the relaxation norms contained in RBI’s circular which would consequently have a direct bearing on the capacity of the petitioner to raise loans from the banking institutions. Aggrieved by the downgraded rating this writ petition was filed.

ARGUMENTS PUT FORTH BY THE PETITIONER:

1. The Petitioner argued that CRAs discharge public functions and therefore they are clearly amenable to Writ jurisdiction. The dispute between the parties seemingly contractual in nature, substantially throws up questions of public law. The Counsel for the petitioner also stated that no ouster clause in the rating agreement can resist the jurisdictional reach of the Court under Article 226 of the Constitution of India.

2. It was argued that even a bare textual reading of the circulars issued by RBI and SEBI clarify that the events that have taken place during the moratorium period cannot be factored into the rating process.

3. The Petitioner further argued that the impugned action of the 3rdRespondent was not in consonance with the policy announcements made by RBI and SEBI and had called upon the court to strike down the actions of the 3rd Respondent.

ARGUMENTS PUT FORTH BY THE RESPONDENTS:

1. The 3rd Respondent pleaded the court to dismiss the petition as infructuous and submitted that it could not be considered as a “State” within the meaning of Article 12 of the Constitution of India. Hence, it was not amenable to writ jurisdiction.

2. The 3rd Respondent stated that the relationship between the petitioner and the 3rdRespondent is purely contractual in nature and that the agreement between the parties was called a rating agreement and any dispute arising out of rating agreement cannot be resolved in writ proceedings. It was further argued that the petitioner also has effective alternative remedies both under the contract as well as under the SEBI (Credit Rating Agencies) Regulations, 1999.

3. SEBI submitted that the petitioner’s understanding of circular was incorrect. It was also pointed out that the instant case pertains to rating of bank loans of the petitioner and does not pertain to rating of debt securities and that in the case of bank loan rating; relevant guidelines issued by RBI would be applicable.

4. Regarding the circular issued by RBI, which was repeatedly invoked by the petitioner, RBI took the position that the circular was merely permissive in character and that it could not be read otherwise.

DECISION OF THE HIGH COURT:

a) Relying on the judgment of the Supreme Court in Rabjit Surajbhan Singh V. The Chairman, Institute of Banking Personnel Selection, Mumbai [(2019) 14 SCC 189], the Court reiterated that a Writ Petition was maintainable against a private body discharging public functions. Such function should be administratively dominated by or under the control of the Government. Such control should be specific and pervasive, and not merely regulatory. A control which is merely regulatory under the statute or otherwise would not make the body ‘State’ Under Article 12.

b) Rating was an evaluation and assessment of creditworthiness of an individual or company and that the debtor’s ability to repay the debt was analysed and based on the same, credit-risk associated with lending was projected and that these were normal corporate functions. The High Court further stated that

“Merely because they have implications for the general public and lending institutions tend to go by them, credit rating agencies cannot be considered as discharging public function or public duty. Secondly, SEBI has only regulatory and supervisory control over the credit rating agencies”.

Applying the aforesaid decision of the Apex Court, the Court held that the 3rd Respondent cannot be characterised as “State” within the meaning of Article 12 of the Constitution of India and that it was not discharging any public function.

c) Rating being an expert job performed by financial analysts, the said experts would be in a better position to handle issues than a Writ Court. If there arises any grievance against the CRA, the options of in-house appeal and complaint before SEBI are efficacious alternative remedies available to the aggrieved.

d) More significantly, the court stated that credit rating indicates the fiscal health of the person or the institution concerned. It would be one thing to state that notwithstanding the actual position ameliorative relief must be provided and that loans should be provided despite the downgrading, but it would be a completely different matter to say that rating should not reflect the actual state of affairs. The court metaphorically added that:

“Any remedial treatment must be preceded by correct diagnosis. If the patient is going to insist that the symptoms should be disregarded, then there can be no proper diagnosis, not to speak of the resulting treatment”

OBSERVATIONS FROM THE ORDERS OF HON’BLE JUDGE:

1. Credit Rating Agencies are not performing any public duty and therefore a Writ Petition does not lie against them.

2. Any person aggrieved by the acts of the CRA shall prefer an in-house appeal or shall file a complaint before SEBI.

Authored by Lakshmi Rengarajan

The High Court of Madras passed an order dated 09th October 2020, setting aside the order (‘Impugned Order’) passed by the Single Bench dismissing the writs that were filed to quash the respective disqualification by the Registrar of Companies (‘ROC’) vide list uploaded by ROC on 17.12.2018 and for consequential reactivation of the DIN or permission for appointment/reappointment as a director.

Section 164(2)(a) of the Companies Act, 2013 prescribes that a person who is or has been a director of a company which has not filed financial statements or annual returns for any continuous period of three financial years is not eligible to be re-appointed as a director of the company or appointed as a director of any other company for five years from the date of default. Relying on the aforesaid provision, the ROC has published multiple lists containing the details of the directors disqualified for a period of five years pursuant to the non-filing of the financial statements or annual returns of a Company for a continuous period of three years and consequently, the DIN of such disqualified directors were also deactivated.

The Division Bench of the Hon’ble High Court of Madras after considering the submissions made by the appellants and respondent, set aside the Impugned Order on the following reasons:

1. That prior notice is required to be issued by the ROC to the director of the defaulting company before taking actions against the disqualification under section 164(2) of the Companies Act, 2013 for the purpose of determining whether the Company has committed the default and for the attribution of the default to particular set of directors and that the prior notice requirement will not be an empty formality as held in the Impugned Order.

2. That the ROC is not empowered to deactivate the DIN as:

(a)  the relevant Companies [Appointment and Qualifications of Directors] Rules, 2014 (‘AQD Rules’) do not provide for the cancellation or deactivation upon disqualification under section 164(2) of the Companies Act, 2013; and

(b)  the same would be in contrary to Section 164 (2) read with section 167(1) of the Companies Act, 2013, which states that the director of the defaulting company will cease to be a director in all other companies wherein he is a director except in the defaulting Company for the purpose of making the requisite filings which would necessarily require the use of his DIN.

In light of the above, the Division Bench allowed the appeals and consequently quashed the publication of the list of disqualified directors by the ROC and deactivation of the DIN. Further, the court directed reactivation of DIN within a period of 30 days from receipt of the order.

Authored by N V Saisunder

The IPAB has, vide its recent decision on 25th August 2020, directed the Registrar of Trademarks to publish that “NOKIA” is a well-known trademark in India.

The said order was passed by the IPAB in an appeal filed by Nokia Corporation arising out of an order dated 27th March 2017 passed by the Registrar of Trademarks (“Impugned Order”), refusing to allow the request filed by Nokia Corporation for incorporating “NOKIA” in the list of well-known trademarks in India.

Nokia Corporation (“Appellant”) had, originally on 5th June 2014, filed a representation before the Learned Controller of Patents, Designs and Trademarks for inclusion of Nokia in the list of Well-known marks as maintained by the Trademarks Registry. It was argued by the Appellant that the said representation was disallowed by the Trademarks Registry despite the Appellant adducing sufficient documents and records evidencing:

a. Its global presence and market recognition since 1865.

b. Prior, long, continuous, and extensive use of trademark, NOKIA, which had acquired worldwide and tremendous reputation and goodwill amongst the purchasing public and traders, and was thus exclusively associated with the Appellant

The Appellant had also, in its original representation, relied upon an ex-parte ad-interim injunction passed by the High Court of Delhi in Nokia Corporation & Ors., v. Movie Express & Ors., in 2012 whereunder the trademark “NOKIA” was held as well-known.

The IPAB while disposing the appeal, based on the arguments and evidences placed by the Appellant, set aside the Impugned Order and held that:

a. The Trademarks Registry had passed the Impugned Order without affording the Appellant an opportunity of being heard in the matter and thus was passed in violation of the principles of natural justice and in contravention of mandatory provisions of the law.

b. The Impugned Order has been passed in a most casual manner without looking into the true facts and background of the matter.

c. The Impugned Order is based on conjectures, surmises and presumptions which are absolutely contrary to the record. Therefore, it cannot be considered that the Trademarks Registry has acted in a just and fair manner prior to passing the Impugned Order.

d. Based on the documentary evidence and supporting documents submitted along with the representation the said mark “NOKIA” is entitled to be included in the list of well-known marks in India by virtue of provisions of Section 11(8) of the Trademarks Act.

e. NOKIA is well-known trade mark in India also.

Further, the IPAB in disposing off the instant appeal, referred a decision of the Delhi High Court in the matter of Tata Sons Ltd. Vs. Manoj Dodia and Others in 2011 wherein it was held that a well-known trademark is a mark which is widely known or recognized by the relevant general public in India and the Indian Trademark Act, 1999 recognises this principle pursuant to the provisions of Article 16 of the TRIPS Agreement, to which India is a signatory party since 1994.

In the light of the above the IPAB directed the Trademarks Registry to publish that the trademark “NOKIA” is a well-known trademark in India.

Authored by N V Saisunder

The Department for Promotion of Industry and Internal Trade (DPIIT) of the Ministry of Commerce and Industry, vide notification dated 19th October 2020, has amended certain rules under the original Patent rules 2003, pursuant to the Patents (Amendment) Rules, 2020.(“New Rules”). The New Rules have been brought into force by the DPIIT to boost the aspect of “Ease of doing business” in India and reduce compliance hassles.

As per the New Rules:

1. PRIORITY DOCUMENT:

Rule 21, which contains provisions on filing of priority document has been substituted as follows:

“21. Filing of priority document – (1) Where the applicant in respect of an international application designating India has not complied with the requirements of paragraphs (a), (b) or (b-bis) of rule 17.1 of the regulations under the Patent Cooperation Treaty, and subject to paragraph (d) of the said rule 17.1 of regulations under the Treaty, the applicant shall file the priority document referred to in that rule before the expiration of the time limit referred to in sub-rule (4) of rule 20 in the Patent Office.

(2) Where sub-paragraph (i) or sub-paragraph (ii) of paragraph (e) of rule 51bis.1 of the regulations under the Patent Cooperation Treaty is applicable, an English translation thereof duly verified by the applicant or the person duly authorised by him shall be filed within the time limit specified in sub-rule (4) of rule 20.

(3) Where the applicant does not comply with the requirements of sub-rule (1) or sub-rule (2), the Patent Office shall invite the applicant to file the priority document or the translation thereof, as the case may be, within three months from the date of such invitation, and if the applicant fails to do so, the claim of the applicant for the priority shall be disregarded for the purposes of the Act.”

2. STATEMENT OF WORKING

The furnishing of working of patents required by the patents office under section sub-section (2) of section 146 would now have to be done once in respect of every financial year starting from the financial year commencing immediately after the financial year in which the patent was granted, and shall be furnished within six months from the expiry of each such financial year, as opposed to the previous deadline of furnishing the workings within three months of the end of each calendar year.

3. Form 27, in the second schedule is amended and now one form may be filed for multiple patents, provided all of them are related patents, wherein the approximate revenue / value accrued from a particular patented invention cannot be derived separately from the approximate revenue/value accrued from related patents, and all such patents are granted to the same patentee(s). The amended Form 27 has also dispensed with the requirement of: (a) identifying licenses/sub-licenses in a given year and (b) as to whether a public requirement out of a patent has been met at a reasonable price. Also, the amended form requires the patentee to provide details of the patent(s) that are worked or not worked in 500 words.

Authored by Lakshmi Rengarajan

Promoters, directors and designated employees (“Identified Persons”) of a Listed Company (“Company”) are [under SEBI (Prohibition of Insider Trading) Regulations, 2015,] required to disclose (to the Company) their trading in the Company’s share, if the aggregate traded value exceeds Rs. 10 Lakhs in a calendar quarter (“Transaction”), within two days of such Transaction. The Company in turn is required to intimate within two days of receipt of details of such Transaction to the stock exchanges where the securities are listed

With trading being carried out only in Demat mode, the information of such trading is an information that is available with the depositories and having automated, the disclosure under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, SEBI is now extending it to the PIT Regulations too.

Vide circular SEBI/HO/ISD/ISD/CIR/P/2020/168 dated 9th September 2020, SEBI has brought in a system driven process to identify and publish the Transaction executed by Identified Persons of Listed Company in its website.

The provisions of this circular is applicable to Transaction by the Identified Persons, both in equity shares of the Company and in the F&O Segment.

Companies are required to provide the PAN/ investor’s demat account number of the Identified Persons to depositories to track the Transaction made by them in the Company in all the exchanges and publish details of such Transaction in its website. The said dissemination will be made by the stock exchanges on T+2 day basis.

Transition

The stock exchange shall commence the publishing of the details of Transaction made by the Persons on and from 01st October 2020.

The obligation of the Identified Persons to make disclosure to the Company continues, so does the obligation of the Companies to disclose to the stock exchanges the disclosure made by the Identified Persons in the existing prescribed formats till 31st March 2021.

 One need to wait to see if SEBI does away with the requirement of dual disclosure after 31st March 2021.

Authored by Vignesh Kumar & Padma Akila

Date(s) of Order  29th May 2020, 4th June 2020, 15th June 2020 & 16th June 2020
Purported contravention committed Leak of Unpublished Price Sensitive Information (“UPSI”) through electronic medium viz; WhatsApp.
Persons charged and who are they Individuals employed in stock broking companies viz; Ms. Shruti Vishal Vora, Mr. Aditya Omprakash Gaggar, Mr. Neeraj Kumar Agarwal & Mr. Parthiv Dalal (“Noticees”)
Companies whose information were being circulated Bata India Limited, Asian Paints Limited, Mindtree Limited & Wipro Limited (“the Companies”).

BACKGROUND OF THE CASE:

1. On November 17, 2017, a news article was published in a newspaper which reported that UPSI pertaining to the financial results of some major companies were circulated through electronic medium viz. WhatsApp, prior to the disclosure of financial results to the stock exchanges by the Companies.

2. Consequent to the news article becoming public and raising concern among the investors, the Securities Exchange Board of India (hereinafter referred to as “SEBI”) conducted search and seizure operations, during which several mobile phones and devices were seized from members of the private WhatsApp group viz; “Market Chatter” in which the Noticees were members.,

3. Although SEBI had been unable to trace the original source of UPSI, upon the scrutiny of the WhatsApp chats from the devices seized, it was SEBI’s allegation that financial information (that were near accurate to that of the subsequently published results, with the variance as per SEBI being very minimal) of certain companies were received by the Noticees, and circulated in the said WhatsApp group prior to disclosure by such companies to the stock exchange, and also forwarded by them to various other individuals who were not connected directly with the Noticees and the Companies.

CONTENTION OF THE NOTICEES:

1. The information circulated through WhatsApp does not qualify to be UPSI, as there is no connection between them and the Companies or its promoters/management. SEBI has accepted the submissions of the Companies, its promoters, directors, employees and auditors who had access to the financial results that they haven’t leaked the information in the financial results to anyone. Hence, the Noticees cannot be construed to be Insiders.

2. The Noticees had circulated the information to other individuals based on the estimates projected by stock broking companies which is available in the public domain and thus the circulated information fails to be qualified as UPSI. Also, the information cannot be UPSI in the absence of any connection between the Company and the person who shared the information.

3. SEBI regulations prohibit communicating UPSI. By the very definition, it is imperative to understand that the said section prohibits only sharing of information and not mere market gossip or speculation. The messages shared through WhatsApp are merely Heard on Street (“HOS”) and not UPSI.

4. SEBI has cherry picked the HOS that closely matched, and has ignored those that have been preposterously incorrect, and post facto analysis of after declaration of results is useless.

5. The Noticees are employed in stock broking companies. It is a part of their work profile to communicate the market expectations, price movements and speculative information based on certain parameters to their clients for making informed decisions.

6. Neither the Noticees nor their family members had traded in the shares of any of the Companies.

FINDINGS BY THE ADJUDICATING OFFICER (“AO”):

1. The leaked information, was the same as the announcements subsequently made by the companies to the stock exchanges, and the inability to trace the source of the leaked information within the companies is irrelevant in the determination of such information being UPSI or otherwise.

2. There was no evidence implying that the information circulated was based on market research which was in turn based on generally available information, and that such market research was accessible to the public on a non-discriminatory basis and hence concluded that the leaked information qualified to be UPSI.

3. Although the Noticees were financially literate and associated with the securities market, who were reasonably expected to be aware of the nature of information shared on the electronic medium, continued to be an instrument in the chain of circulation of PSI and did not  report the leak of information to SEBI but instead they accepted such PSI and thereafter passed it on to other unconnected individuals to the Companies.

4. The information in this case was not generally available in a public domain but was being circulated in a closed group which would lead to discriminatory access and thus cannot be HOS information. The Noticees being well acquainted with the working of the securities market and sensitive information couldn’t have been negligent over the materiality of an information received. Moreover, no alarm was raised even when they found out that the circulated information matched the announced financial results accurately. Therefore, the Noticees have deliberately circulated the information by taking advantage of its price sensitive nature.

5. Though it was a part of the work profile of the Noticees to inform their clients regarding the speculative financial information, in the present case, such information was shared to individuals who were not connected to the stock broking companies in which the Noticees were employed in and the Companies to whom such information pertains to.

DECISION OF THE AO:

a) [1]Regulation 2(1)(g) of SEBI (Prohibition of Insider Trading) Regulations, 2015 (“SEBI (PIT) Regulations) elucidates who is considered as an insider. Any person in possession or having access to UPSI is construed to be an insider irrespective of how such UPSI was transmitted to the Noticees. The Noticees are deemed to be insiders regardless of the fact that the link to the leak of PSI could not established.

b) [2]Regulation 3(1) of SEBI PIT Regulations prohibits the communication of UPSI by an insider. The law does not grant excuse to the Noticees from the guilt of communicating PSI merely because the recipients of the information did not deal with the securities of the Company.

c) In order to safeguard the integrity of the securities market, it is not considered appropriate to give a liberal thought and benefit of doubt to the conduct of the Noticees considering the recurring act of the leak of information over WhatsApp.

d) The Noticees had communicated UPSI to other individuals which tantamount to the exploitation of the other investors who do not have access to UPSI to make informed decisions.

e) The Noticees had violated the provisions of Sections [3]12A(d) & [4]12A(e) of the SEBI Act, 1992 and Regulation 3 (1) of SEBI (PIT) Regulations, 2015

OBSERVATIONS FROM THE ORDERS OF AO: 

1. The obligation to maintain a structured digital data base as mandated under SEBI (PIT) Regulations will act as a safe harbour for companies in tracking any leakage of UPSI.

2. One needs to see if these decisions are being appealed, as the reasoning of the AO without establishing a link with the source of information sets a precedent that goes beyond the stated intent of the regulation.

[1] Regulation 2(1)(g) – “insider” means any person who is:

  1. A connected person, or
  2. in possession of or having access to unpublished price sensitive information

[2] Regulation 3(1)No insider shall communicate, provide, or allow access to any unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, to any person including other insiders except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.

[3] Regulation 12A(d) – No person shall directly or indirectly engage in insider trading

[4] Regulation 12A(e)No person shall directly or indirectly deal in securities while in possession of material or non-public information or communicate such material or non-public information to any other person, in a manner which is in contravention of the provisions of this Act or the rules or the regulations made thereunder.

Authored by Aishwarya Lakshmi VM

Applicant: Raghav Commercial Ltd. Date of the guidance:  04.06.2020

Factual Background

1. HEG Ltd. [Company] has its equity shares listed in BSE and NSE. There are around 23 promoters, comprising of both individuals and non-individuals, in the company.

2. Certain Non-individual Promoters of the Applicant intend to carry out inter-se transfer of shares not exceeding 5%, by block deal mechanism, among the Promoter / Promoter Group.

Guidance sought

1. Whether the contra-trade restrictions under PIT Regulation applies to each Promoter(s), or whether the entire Promoter Group is considered for this provision?

2. Whether the proposed transaction will attract trading window restrictions under PIT Regulation?

3. Whether exemptions for obligation to make Open Offer under the SAST Regulations are required for the proposed transaction?

Provisions Involved

1. Proviso (ii) to Regulation 4(1) of SEBI (Prohibition of Insider Trading) Regulations, 2015.[1]

2. Regulation 9 (1) of SEBI (Prohibition of Insider Trading) Regulations, 2015.[2]

3. Clause 3, Schedule B, SEBI (Prohibition of Insider Trading) Regulations, 2015.[3]

4. Regulation 3(2) of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011.[4]

5. Regulation 10 of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011.[5]

Informal Guidance by SEBI

a. SEBI clarified that contra-trade restrictions, that is required to be specified in the code of conduct under Reg. 9(1) of PIT Regulations, apply only to trades made by promoters individually and not the entire promoter group.

b. SEBI confirmed that when the parties to the block deal trade without being in breach of Reg. 3 of PIT Regulations, and made a conscious and informed decision, the transaction will not attract trading window restriction, but would be subject to clearance by the compliance officer.

c. The proposed transaction, as intimated by the Applicant, wasn’t to exceed 5% of the gross acquisitions. Hence, SEBI clarified that there would be no necessity to make an open offer. However, SEBI brought to the attention of the Applicants that while construing the limits of 5%, all the acquisitions by the concerned parties in the financial year must be taken into account.

The letter of SEBI can be read at: https://www.sebi.gov.in/sebi_data/commondocs/sep-2020/SEBI%20let%20Raghav%20IG_p.pdf

As per the Informal Guidance [Scheme] 2003 of SEBI, the guidance provided is applicable only to the Applicant, and is should not be construed as a conclusive decision or determination of any question of law or fact by SEBI, and is also not an Order u/S 15T of SEBI Act, 1992.

[1] Proviso (ii) to Reg 4(1)(ii), PIT Regulations: The provisos to Reg. 4(1), specify certain instances that an `Insider’ may demonstrate to prove his innocence, even if he had traded while in possession of UPSI, and proviso (ii) gives one such instance. It reads as “The transaction was carried out through the block deal window mechanism between persons who were in possession of the unpublished price sensitive information without being in breach of regulation 3 and both parties had made a conscious and informed trade decision; Provided that such unpublished price sensitive information was not obtained by either person under sub-regulation (3) of regulation 3 of these regulations.”

[2] Reg 9(1), PIT Regulations: The board of directors of every listed company and the board of directors or head(s) of the organization of every intermediary shall ensure that the chief executive officer or managing director shall formulate a code of conduct with their approval to regulate, monitor and report trading by its [designated persons and immediate relatives of designated persons] towards achieving compliance with these regulations, adopting the minimum standards set out in Schedule B [(in case of a listed company) and Schedule C (in case of an intermediary)] to these regulations, without diluting the provisions of these regulations In any manner.

[3] Clause 3, Schedule B, PIT Regulations: Designated Persons and immediate relatives of designated persons in the organization shall be governed by an internal code of conduct governing dealing in securities.

[4] Reg 3(2), SAST Regulations: No acquirer, who together with persons acting in concert with him, has acquired and holds in accordance with these regulations shares or voting rights in a target  company  entitling  them  to  exercise  twenty-five  per  cent  or  more  of  the  voting rights  in  the  target  company  but  less  than  the  maximum  permissible  on public shareholding,  shall  acquire  within  any  financial  year  additional  shares  or  voting rights in such target company  entitling them to exercise more than five per cent of the voting rights, unless the acquirer makes a public announcement of an open offer  for  acquiring  shares  of  such  target  company  in  accordance  with  these regulations.

[5] Reg. 10, SAST Regulations: The following acquisitions shall be exempt from the obligation to make an open offer under regulation 3 and regulation 4 subject to fulfillment of the conditions stipulated therefor acquisition pursuant to inter se transfer of shares amongst qualifying persons, being (ii) persons named as promoters in the shareholding pattern filed by the target company in terms of the listing regulations or as the case may be, the listing agreement or these regulations for not less than three years prior to the proposed acquisition.

Authored by Aishwarya Lakshmi VM

In the matter of: TRADING ACTIVITIES OF PANKAJ J. SHAH HUF AND CONNECTED ENTITIES IN THE SCRIPS OF

      i.         L&T FINANCE HOLDINGS LTD.,

     ii.         TREE HOUSE EDUCATION LTD. AND

   iii.         FUTURE VENTURES INDIA LTD.

Date of the order: 31stAugust, 2020.

Provisions invoked

(a) Sections 12A (a), (b) and (c) of the SEBI Act, 1992.[i]

(b) Regulation 3 (a), (b), (c), (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 [ii]

(c) Regulation 4(1) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003.[iii]

(d) Section 2(i)(a) read with Sections 13, 16 and 18 of the Securities Contract Regulation Act, 1956.[iv]

(e) Section 15HA of the SEBI Act, 1992.[v]

(f) Section 23H of the SCRA, 1956.[vi]

(g) Section 15J of the SEBI Act, 1992 r/w rule 5(2) of the AO Rules, 1995 and Section 23J of the SCRA, 1956 r/w rule 5(2) of the AO Rules, 2005.[vii]

Facts of the case:

1. SEBI received a Suspicious Transaction Report (“STR”) from the Financial Intelligence Unit (FIU) stating that one of the Noticees to whom show cause notice was issued (“Noticee 36”) received 19,431 shares from L&T Finance Holdings Ltd. through off-market transactions from 55 entities who were allotted shares at the time of IPO of L&T Finance Holdings.

2. Investigating Authority (IA) was appointed and investigation was carried on in this matter from May 10, 2011 to December 31, 2011, and it was concluded that Pankaj J Shah HUF (“Noticee 1”) was used as a tool by Noticee 2-the Karta of the HUF, and father of Noticee 36, to corner the shares meant for Retail Individual Investor(“RII”) category in the IPO of L&T Finance Holdings Ltd., Tree House Education Ltd. and Future Ventures India Ltd.

3. Noticees 3 to 37 were all, either family friends or relatives of Noticee 2.

4. The allegation was that Noticee 2 provided minimal interest loans to Noticees 3 to 37, opened demat accounts in their names, and purchased shares in the IPO under the RII category, and later, the shares or the proceeds of the sale of the shares were transferred to Noticee 36.

5. The report of the IA contained details that

a. date of opening of demat accounts were just before the IPOs;

b. the KYC was done using the same address and phone number; and

c. the same person (who was a clerk in the school run by Noticee 2) was appointed as an agent to operate the demat accounts for majority of the Noticees.

Noticee’s defence

(a) Delay in initiation of proceedings: Noticee 1 and 2 in their reply had stated that the transactions purporting to 2011 were rekindled by SEBI in 2019 – 2020 which is almost more than nine years. Since most statutes mention a document retention period of only 7 to 8 years, the Noticees were gravely jeopardized from responding accurately, with evidential backing.

(b) Lack of opportunity to inspect supporting documents: SEBI did not permit the Noticees to examine the (i) investigation report, (ii) suspicious transaction report received by SEBI from Financial Intelligence Unit, and (iii) authority letters of various noticees authorizing the clerk to operate the demat accounts. This is neither fair nor just and fundamentally impairs the ability of a person to defend himself.

(c) Contrary to Principles of Natural Justice: Levying charge on both the HUF and Karta of the HUF in individual capacities when in fact, HUF is only a legal fiction tantamounts to the contravention of natural justice principles.

(d) Common Practice in Security Markets: Commonly, the head of the family funds the accounts of their children/ spouse/ in laws to participate in the securities market. Extrapolating any other view i.e. SEBI holding that a head of family funding account of the family is in violation of PFUTP Regulations, then the securities market will come to a standstill.

(e) Standard of Proof to establish Fraud: Fraud being a serious offence the standard of proof is of a higher degree and mere conjectures and surmises will not be sufficient to hold a person liable for fraud. However, SEBI has not established fraud beyond reasonable doubt.

(f) Element of Intent: The precondition to fraud, i.e. ill-intent is not established by SEBI.

(g) Shares re-transferred by Noticee 36: Since Noticee 36 wanted to trade in F&O, she was obliged to offer collaterals for which she used the shares lent by Noticee 1 (the HUF she was a part of), and Noticee2, (her father).However, she was not able to arrange the margin money and hence she re-transferred the shares. This clearly indicates that there was no actual buying.

(h) Refuting the allegation: A handful of Noticees refuted the allegation that they authorised the clerk to operate their bank account. They argued that they personally operated or engage their spouse to operate the respective accounts.

(i) Transaction between Family Members: Some of the Noticees were blood relatives to Noticee 36 like mother, grand-mother and brother hence the requirement of consideration is not needed.

Decision of the AO

1. The Adjudicating Officer accepting only the defence of natural justice rejected all other defences taken by the Noticees stating that:

a. There is no prescribed time limit under the SEBI Act, 1992 or the SCRA, 1956 to initiate proceedings.

b. The contents of the STR have not been referred to in the SCN at all, and hence there is no duty cast upon the AO to disclose or provide all the documents in his possession especially when such documents are not being relied upon.

c. The KYC details contradict the contention that there is no connection between the parties and therefore fraud is not established. Whether an act or practice is unfair is to be determined by all the facts and circumstances surrounding the transaction. In this case all available evidence points to the contravention.

d. Once contravention is established penalty is sure to follow.

e. Shares transferred by the family friends and relatives were higher in value than what was owed by them to Noticee 1. Also there was no entry in the ledger showing that their loan had been repaid by transfer of shares. Moreover, neither Noticees 1, 2 nor Noticee 36 had paid the price for the spot delivery contract on the day of the transaction or the next day. Hence, it is an outright violation of the SCRA, 1956.

2. The contraventions having been established clearly, the AO levied penalty considering the lack of disproportionate gain or unfair advantage, relatively lesser amount of loss caused to an investor or group of investors and previous track record.

3. Penalty of Rs.35,00,000/- (Rupees Thirty Five Lakh Only) was levied jointly and severally on all the 37 Noticees. In addition, Noticee 36 was levied penalty of Rs.2,50,000/- (Rupees Two Lakh and Fifty Thousand Only) and all other Noticees were individually levied a penalty of Rs.25,000/- (Rupees Twenty Five Thousand Only).

Regulatory issues that are to be noted from this decision of AO
1. Law of limitation is not applicable for SEBI to initiate proceedings in case of allegation of any fraud.

2. KYC norms stand proof to the authenticity of the person trading. Hence, it is to be followed diligently.

3. HUF cannot be used as a tool to commit fraudulent and unfair trade practices.

 

[i]Section 12A, SEBI Act, 1992: Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control: No person shall directly or indirectly—

(a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a RSE, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder;

(b) Employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a RSE;

(c) Engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognized stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder.

[ii]Section 3, PFUTP Regulations, 2003: Prohibition of certain dealings in securities: No person shall directly or indirectly—

(a) buy, sell or otherwise deal in securities in a fraudulent manner;

(b), (c) and (d) are respectively similar to (a), (b) and (c) of S.12A, SEBI Act, 1992 as provided above.

[iii]Section 4(1), PFUTP Regulations, 2003: Prohibitionof manipulative, fraudulent and unfair trade practices: Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities.

[iv]Section 2(i) SCRA, 1956: “spot delivery contract” means a contract which provides for, — (a) actual delivery of securities and the payment of a price therefore either on the same day as the date of the contract or on the next day, the actual period taken for the dispatch of the securities or the remittance of money therefore through the post being excluded from the computation of the period aforesaid if the parties to the contract do not reside in the same town or locality; Sections 13, 16 & 18 empower the Central Government to regulate such contracts.

[v]Section 15HA, SEBI Act, 1992: If any person indulges in FUTP relating to securities, he shall be liable to a penalty twenty-five crore rupees or three times the amount of profits made out of such failure, whichever is higher.

[vi]Section 23H, SCRA, 1956: Whoever fails to comply with any provision of this Act, the rules or articles or byelaws or the regulations of the RSE or directions issued by SEBI for which no separate penalty has been provided, shall be liable to a penalty which may extend to one crore rupees.

[vii]Section 15J, SEBI Act, 1992 and Section 23J, SCRA, 1956: While adjudging quantum of penalty under section 15-I, the adjudicating officer shall have due regard to the following factors, namely: – (a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (b) the amount of loss caused to an investor or group of investors as a result of the default; (c) the repetitive nature of the default

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