Further Measures Taken by SEBI in Light of the COVID-19 Outbreak
Since our Client Alert dated April 2, 2020 (accessible here), the Securities and Exchange Board of India (‘SEBI’) has taken further measures in light of the COVID-19 outbreak. Some key updates are set out below:
1. Reduced Compliance Burden on Registrars to Issue and Share Transfer Agents (‘RTAs’)
Through its Circular dated April 13, 2020, SEBI has extended the time period for completion of certain activities to be carried out by the RTAs holding category 1 or category 2 SEBI registration or issuer companies, by 21 days, in addition to the prescribed time period. Such activities include processing of rematerialisation or transmission requests, processing of requests for issue of duplicate share certificates, processing of requests for name deletion, name change etc., handling investor correspondences / grievances / SCORES complaints, submission of half yearly report, audit report and compliance report, and other similar requirements.
2. Relaxation in Timelines for Activities by Depository Participants (‘DPs’), RTAs, Issuers, KYC Registration Agencies (‘KRAs’), Stock Brokers
By its Circular dated April 16, 2020, SEBI has provided relaxations in timelines for certain compliance requirements relating to DPs, RTAs, issuers, KRAs, and stock brokers. The Circular provides that the time period between March 23, 2020 and May 17, 2020 will be excluded for computing the timelines for the following activities:
(i) Processing of the dematerialisation request form by issuer / RTA and by DPs; and
(ii) Uploading Know Your Client (KYC) application form and supporting documents on the system of the KRAs.
Further, a period of 15 days after May 17, 2020 has been granted to SEBI intermediaries to clear the backlog.
3. Reduction in Compliance Burden on Trading Members / Clearing Members
By its Circular dated April 16, 2020, SEBI has extended the due dates as follows for the following regulatory filings and compliance requirements by trading members and clearing members:
(i) May 17, 2020: penalty for non-collection / short collection of upfront margins in cash settlement and maintaining call recordings of orders / instructions received from clients;
(ii) May 31, 2020: client funding reporting and reporting for artificial intelligence and machine learning applications;
(iii) June 30, 2020: compliance certificate for margin trading for capital markets segment, risk based supervision, internal audit report for half year ending March 31, 2020, net worth certificate in margin trading for capital markets segment for half year ending March 31, 2020 and net worth certificate for all members for half year ending March, 2020; and
(iv) July 31, 2020: system audit report (algo) and system audit report.
Additionally, by its Circular dated April 21, 2020, SEBI has provided the following relaxations from certain compliance requirements of trading members and clearing members:
(i) Delay in submission of the following reports will not attract penal provisions till May 17, 2020: (a) submission towards weekly monitoring of client funds under the provisions of enhanced supervision; (b) submission of data on monthly basis towards clients’ and fund balance under the provisions of enhanced supervision; and (c) daily margin trading reporting;
(ii) The date for the following compliance requirements have been extended by a period of 1 month from their due date: (a) update in income tax permanent account number of key managerial personnel / directors; and (b) issue of annual global statement to clients.
4. Additional Relaxations Relating to SEBI Listing Regulations
In addition to relaxations granted by its Circulars dated March 19, 2020 and March 26, 2020, SEBI has, by its Circulars dated April 17, 2020 and April 23, 2020 issued further relaxations and clarifications in respect of certain compliance requirements under SEBI Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘SEBI LODR’) to listed entitles. The key features of the April 17, 2020 Circular are:
(i) Minimum prior intimation to the stock exchanges under Regulation 29 of SEBI LODR of at least 5 days for a board meeting where financial results are to be considered, has been reduced to 2 days (whether or not working days) for board meetings held till July 31, 2020;
(ii) Delay by listed companies in informing the stock exchanges, beyond the stipulated time period of 2 days of receipt of information, regarding loss of share certificates and issue of duplicate certificates will not attract specified penal provisions for intimations made between March 1, 2020 and May 31, 2020;
(iii) Digital signature certifications may be used for authentication / certification of any filing / submissions made to the stock exchanges under the SEBI LODR until June 30, 2020; and
(iv) Entities with listed non-convertible debentures and/or non-convertible-redeemable preference shares are exempted from requirement to publish advertisements in newspapers relating to its half yearly and annual financial results under Regulation 52(8) of SEBI LODR until May 15, 2020.
Further, by its Circular dated April 23, 2020, SEBI has relaxed the requirement of holding an annual general meeting (‘AGM’) by the top 100 listed entities (by market capitalization) by allowing such companies, whose financial year ended on December 31, 2019, to hold its AGM within a period of 9 months (instead of 5 months) from the closure of the financial year i.e. up to September 30, 2020.
Please refer to our Client Alert dated April 2, 2020 (accessible here) in respect of SEBI’s Circulars dated March 19, 2020 and March 26, 2020.
5. Extension of Regulatory Measures Taken by SEBI
By its Press Release dated April 20, 2020, SEBI has extended the applicability of all the measures implemented by its Press Release dated March 20, 2020 until May 28, 2020. Please refer to our Client Alert dated April 2, 2020 (accessible here) in respect of SEBI’s Circulars dated March 19, 2020 and March 26, 2020.
6. Relaxations in Respect of a Rights Issue
SEBI by way of its Circular dated April 21, 2020 has introduced temporary relaxations for companies undertaking a rights issue. The relaxations granted are with respect to: (i) minimum subscription; (ii) minimum threshold for filing the draft letter of offer with SEBI; and (iii) the eligibility conditions for companies undertaking a fast track rights issue. These relaxations are applicable for right issue that opens on or before March 31, 2021. In terms of this Circular, for companies undertaking a rights issue, the criteria for the minimum subscription now stands reduced to 75% from the existing requirement of 90%, subject to the condition that the rights issue subscribed between 75% and 90% will be considered successful, if 75% of the issue size is utilized for the identified objects of the issue i.e. other than general corporate purpose. Further, the company will not be required to file a draft letter of offer with SEBI, if the issue size for a rights issue is up to INR 25 crore as opposed to the existing minimum threshold of INR 10 crore.
The SEBI Circular also provides the following additional relaxations to the eligibility requirements for a company undertaking a fast track rights issue:
(i) The period of: (a) having the equity shares listed on any stock exchange; (b) having complied with either the listing agreement or the requirements of the SEBI LODR immediately preceding the reference date; and (c) the equity shares not being suspended from trading of the equity shares as a disciplinary measure immediately preceding the reference date; now stands reduced to 18 months as opposed to a period of 3 years previously;
(ii) The minimum average market capitalization of public shareholding of the issuer is now reduced to INR 100 crore as opposed to INR 250 crore previously;
(iii) In cases where show cause notices, excluding under adjudication proceedings, have been issued by SEBI against the issuer or its promoters or whole-time directors as on the reference date, such issuers will now be eligible to apply in a fast track rights issue. Further, adequate disclosures with respect to the: (a) show cause notices issued by SEBI in an adjudication proceeding; and (b) prosecution proceedings initiated by SEBI, against the issuer, its promoters, directors or group companies, are required to be made in the letter of offer along with its potential impact on the issuer;
(iv) The issuer, its promoters, promoter group or the directors who have fulfilled the settlement terms or adhered to the directions of the settlement order issued by SEBI through the consent or settlement mechanism, are now eligible to participate; and
(v) In the event the financial statements of the issuer, as disclosed in the letter of offer, consist of any audit qualifications, such issuer can include the restated financial statements in the letter of offer, adjusting the impact of these audit qualifications. Further, if the impact of such audit qualifications cannot be ascertained, the same will have to be disclosed appropriately in the letter of offer.
7. One-time Relaxation with Respect to Validity of SEBI Observations in case of a Public Issue and Rights Issue
SEBI has, through its Circular dated April 21, 2020, decided to extend the validity of SEBI observations on all public issues/ rights issues by 6 months from the date of expiry for issuers whose observation has expired/ will expire between March 1, 2020 and September 30, 2020. Currently, a public issue / rights issue may be opened within 12 months from the date of issuance of observations by SEBI. This is permitted subject to an undertaking from lead manager of the issue confirming compliance with Schedule XVI of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 while submitting the updated offer document to SEBI.
Further, an issuer, whose offer document is pending receipt of SEBI observation, is also permitted to increase or decrease the fresh issue size by up to 50% of the estimated issue size (instead of the present limit of 20%) without requiring to file fresh draft offer document with SEBI. The relaxation will be applicable for all offer documents pending receipt of SEBI observations up to December 31, 2020.
8. Relaxation in Regulation 24(i)(f) of the SEBI Buy-Back Regulations
SEBI has provided temporary relaxations of conditions with respect to raising of funds from the securities market. Regulation 24(i)(f) of SEBI (Buy-back of Securities) Regulations, 2018 provides a restriction that the companies will not raise further capital for a period of 1 year from the expiry of buyback period, except in discharge of their subsisting obligations. SEBI has, through a Circular dated April 23, 2020, reduced the said period of 1 year to 6 months, to bring it in line with Section 68(8) of the Companies Act, 2013. This relaxation will be applicable till December 31, 2020.
9. Relaxation in Timelines for Compliance with Regulatory Requirements by Depositories and DPs
By its Circular dated April 24, 2020, SEBI has provided relaxations for compliance with certain regulatory requirements relating to depositories and DPs by extending the timelines as follows:
(i) May 18, 2020: submission of beneficial owners grievances report to depositories for March 2020 and April 2020;
(ii) May 31, 2020: reporting of Artificial Intelligence and Machine Learning applications for quarter ended March 2020;
(iii) June 30, 2020: submission of: (a) half yearly internal audit report (IAR) by DPs; and (b) risk based supervision, for half year ended March 31, 2020;
(iv) July 31, 2020: systems audit on annual basis for the financial year ended March 31, 2020; and
(v) The time period from March 23, 2020 till May 17, 2020 will be excluded for computing the timelines for the following requirements: (a) redressal of investor grievances; (b) transmission of securities; and (c) closure of demat accounts. Further, for compliance with the foregoing requirements at (a) to (c), the depositories / DPs can clear the backlog within a period of 15 days post May 17, 2020.