Corporate & Commercial Monthly Newsletter | June 2021

• Published date: 08 June 2021
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Financial Services, Corporate and Company Law, Contracts and Commercial Law, Shareholders
• Law Firm: HSA Advocates
• Author: HSA Advocates

SEBI (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations 2021

Securities and Exchange Board of India (SEBI) vide Gazette notification dated May 05, 2021, notified the SEBI (Substantial Acquisitions of Shares and Takeover) (Amendment) Regulations, 2021 (Amendment) which amends the SEBI (Substantial Acquisitions of Shares and Takeover) Regulations, 2011 (Regulations).

The primary aim of the Regulation is to monitor and control acquisition of shares and voting rights in publicly listed companies of India. During the course of the time, the Regulation has gone through multiple amendments to keep up with the dynamic trading platforms and investor behavior patterns. The current Amendment aims to amend the Regulations to insert certain provisions relating to the Innovators Growth Platform and the trigger point for making open offer by an acquirer.

Amendment

The Amendment has amended the nomenclature wherein the Institutional Trading Platforms (ITP) has been substituted with Innovators Growth Platform (IGP). Further, the trigger for making a public offer under Regulations 3 and 6 of the Regulations, in the listed entities on IGP has been enhanced to 49% from the erstwhile 25%, pursuant to the Amendment.

Pursuant to the Amendment, the requirement to disclose further acquisition of shares to the board of that company, beyond the threshold of 5% has been revised to 10%. Regulation 29 (2) of the Regulations requires disclosure of change in shareholding or voting rights of the acquirer if such change exceeds 5% of total shareholding /voting rights from the erstwhile 2%, pursuant to the Amendment.

Furthermore, Regulation 26 (6) of the Regulations, which deals with the analysis by the committee of independent directors, the Amendment seeks to introduce disclosure of voting pattern of the meeting in which the open offer proposal was discussed as a part of the detailed public statement issued along with the open offer by the acquirer.

Conclusion

The Amendment is seen as another modification by SEBI to revive the market lows, as the trade and market experience a decline in value creation by different firms using such platforms. Setting the bar lower for shareholders and voting rights was intended to stamp on fair market play and encourage more transparency on the acquisition of shares, voting rights, and standing on the shareholder's board. However, intending to give liberty to the acquirers and motivate them to indulge in trading in companies, SEBI has relaxed the regulations to some extent. It would mean that the acquirer can buy such shares without triggering the need for making an open offer until 49%, unlike other listed entities whereupon acquiring 25% shares, the acquirer shall have to make an open offer to the public mandatorily. Any acquirer will now be able to exercise a little more room to avoid the procedural formality of public disclosures and infuse capital in cash straped companies.

Additional due diligence requirements for SSMI under IT Intermediary Guidelines Rules kick in

The Government of India (GoI) notified the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 on February 25, 2021. The said new rules superseded the Information Technology (Intermediaries Guidelines) Rules, 2011 and took effect on February 25, 2021the date of their publication in the Official Gazette.

However, Rule 4(1) of the said new rules, which applied to Significant Social Media Intermediaries (SSMIs) and required them to observe specific additional due diligence, gave them three months to comply with the said specific requirements. The period of three months was to run from the date the GoI notified the threshold of minimum registered users for a Social Media Intermediary (SMI) to be classified as a SSMI. On February 25, 2021, GoI issued another notification which provided the said threshold to be 5 million registered users.

The aforementioned period of three months expired on May 24, 2021, and now, the SSMIs are required to comply with the additional due diligence requirements as stipulated in Rule 4(1). Hereinbelow are the key additional requirements which an SSMI is required to comply with w.e.f. May 25, 2021:

• Appointment of Chief Compliance Officer (CCO) who shall be responsible for ensuring compliance with the IT Act and the rules made under the said Act and be liable under any proceedings relating to any third-party information, data or communication link hosted or made available by the SSMI. The CCO should be a KMP or senior executive of the SSMI and resident in India.
• Appointment of nodal contact person, who may be contacted by the law enforcement agencies for 24x7 coordination and to ensure compliance with their orders. Such person should also be resident in India.
• Appointment of resident grievance officer to whom a victim or user may make complaint for violation and who shall also be responsible for disposing of the complaint within fifteen days. The said resident grievance officer is also responsible for receiving the orders issued by the Appropriate Government.
• Publication of monthly compliance reports.

It is pertinent to mention that the SSMIs were provided grace period of three months only for the above compliances. SSMIs were already required to comply with certain additional compliances under the new rules. E.g. SSMIs engaged in providing messaging services are required to enable identification of first originator of a message or information. Also, an SSMI engaged in providing any service relating to transmission of information which earns it financial benefit or which is its exclusive intellectual property, is required to make a disclaimer to the effect that the said information is being advertised, sponsored or marketed or is subject to its exclusive ownership as intellectual property.

SEBI increase the overall overseas limit for AIFs and VCFs from USD 750 million to USD 1500 million

After consultation with the Reserve Bank of India (RBI), the securities markets regulator SEBI has doubled the overall overseas investment limit for Alternative Investment Funds (AIFs) and Venture Capital Funds (VCFs) from USD 750 million to USD 1500 million vide its Circular dated May 21, 2021.

AIFs and VCFs which are registered with SEBI are authorized to invest in companies, entities and undertakings incorporated outside India subject to certain terms and conditions provided by SEBI from time to time. While the overall limit for overseas investment by these registered AIFs and VCFs has now been enhanced, all the other requirements, guidelines, terms...