Transfer of Equity Shares

SEBI has vide its circular dated 11th February, 2019 relaxed the mandatory requirement of providing Permanent Account Number (PAN) in respect of transfer of equity shares in listed entities. Hitherto it was a mandatory requirement for all transferees to provide PAN in respect of physical transfer of shares. Now it has been relaxed for Non Resident Indians (NRIs), Overseas Citizens of India (OCIs), Persons of Indian Origin (PIOs) and foreign nationals, subject to some conditions.

The conditions are:

a. The relaxation shall only be available for transfers executed after January 01, 2016.

b. The relaxation shall only be available to non-commercial transactions, i.e. transfer by way of gift among immediate relatives.

c. The non-resident shall provide copy of an alternate valid document to ascertain identity as well as the non-resident status.

d. The transfer of shares is to their immediate relatives only.

For the purpose of Para 3(b) above, the term “immediate relative” shall shave the same meaning as defined in Regulation 2(1)(l) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

A copy of this circular can be found here

Cyber Security

The Pension Fund Regulatory Development Authority (PFRDA) has mandated vide its circular dated 7th January, 2019 that all intermediaries who are registered with PFRDA should obtain a certificate on a half yearly basis that they are following the cyber security measures as enumerated in the Cyber Security Policy

The copy of the circular can be found here

PFRDA intermediaries are basically the following: Central Recordkeeping Agency (CRA), Trustee Bank (TB), NPS Trust, Point of Presence (POP) under NPS, NPS-Lite and Atal Pension Yojana, Pension Fund and Custodian involved in the implementation of the NPS.

GSTR-7

Central Board of Indirect Taxes and Customs has vide its notification dated 8th February, 2019 extended the last date for filing of form GSTR-7 for the month of January, 2019 upto 28th February, 2019. This form GSTR-7 is a return by a registered person required to deduct tax at source under section 51 of CGST Act, 2017.

Section 51 mandates tax deduction at source at the rate of 1% from the payment made to supplier of taxable goods or services where total value of such supply, under a contract, exceeds Rs.250,000/-.

The copy of the notification can be found here

Secretarial Compliance Report

SEBI has mandated vide their circular dated 8th February, 2019 that listed entities shall submit a Secretarial Compliance Report (SCR) for the year ended within 60 days from the end of the year to the stock exchanges. This report shall be prepared by Practising Company Secretaries (PCS) and submitted to the company and the company in turn will submit the same to the SEs within the said period of 60 days as above.

Secretarial Audit under section 204 of the Companies Act, 2013 shall continue in parallel and this applies to all listed entities and their material unlisted subsidiaries.

A look at the format of the SCR shows that the PCS has to go through the documents, records, filings, submissions, website, and certify that the company has complied with all the relevant and applicable SEBI regulations to the company. The PCS has to report on the non compliances, details of action taken against the company, its directors, promoters etc. in much detail. What action has been taken by the company against any qualified remark in the previous report(s). Whether the listed entity has maintained proper records as required under the various regulations.

It is a very dynamic report and requires lot of effort on the part of PCS to compile this report.

The time frame is also very less as the report has to be submitted by the company to the SEs within 60 days from the close of the financial year.

One has also to wonder why the need for a separate report on virtually the same subject from two different regulators. What was required was amendment of the format issued by MCA so that the points captured by SEBI in their draft SCR could have been encapsulated in the SAR itself. 

External Commercial Borrowings

RBI has vide its notification dated 7th February, 2019 allowed companies who are underoing the insolvency process to raise external commercial borrowings to repay rupee loans on approval basis. The gist of RBI notification is given below:

2. In terms of paragraph 2.1.(viii) of the Annex to the A.P. (DIR Series) Circular No. 17, dated January 16, 2019 on “External Commercial Borrowings (ECB) Policy – New ECB Framework”, ECB proceeds cannot be utilised for repayment of domestic Rupee loans, except when the ECB is availed from a Foreign Equity Holder as defined in the aforesaid framework.

3. On a review it has been decided, in consultation with the Government of India, to relax the end-use restrictions for resolution applicants under the Corporate Insolvency Resolution Process (CIRP) and allow them to raise ECBs from the recognised lenders, except the branches/ overseas subsidiaries of Indian banks, for repayment of Rupee term loans of the target company under the approval route. Accordingly the resolution applicants, who are otherwise eligible borrowers, can forward such proposals to raise ECBs, through their AD bank, to Foreign Exchange Department, Central Office, Mumbai of the Reserve Bank for approval.

4. All other provisions of the ECB policy remain unchanged. AD Category - I banks should bring the contents of this circular to the notice of their constituents and customers. The amended ECB policy will come into force with immediate effect.

The RBI notification can be viewed here

Unregulated Deposits

PIB press release dated 6th February, 2019

The Union Cabinet, chaired by the Prime Minister  Narendra Modi, has given its approval to move official amendments to the Banning of Unregulated Deposit Schemes Bill, 2018, pursuant to the recommendations of the Standing Committee on Finance (SCF). The Banning of Unregulated Deposit Schemes Bill, 2018 was introduced in Parliament on 18th July, 2018 and was referred to the SCF, which submitted its Seventieth Report on the said Bill to Parliament on 3rd January, 2019. The official amendments will further strengthen the Bill in its objective to effectively tackle the menace of illicit deposit taking activities in the country, and prevent such schemes from duping poor and gullible people of their hard earned savings.

Salient features:

• The Bill contains a substantive banning clause which bans Deposit Takers from promoting, operating, issuing advertisements or accepting deposits in any Unregulated Deposit Scheme. The principle is that the Bill would ban unregulated deposit taking activities altogether, by making them an offence ex-ante rather than the existing legislative-cum-regulatory framework which only comes into effect ex-post with considerable time lags;
• The Bill creates three different types of offences, namely, running of Unregulated Deposit Schemes, fraudulent default in Regulated Deposit Schemes, and wrongful inducement in relation to Unregulated Deposit Schemes.
• The Bill provides for severe punishment and heavy pecuniary fines to act as deterrent.
• The Bill has adequate provisions for disgorgement or repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally.
• The Bill provides for attachment of properties / assets by the Competent Authority, and subsequent realization of assets for repayment to depositors;
• Clear-cut time lines have been provided for attachment of property and restitution to depositors;
• The Bill enables creation of an online central database, for collection and sharing of information on deposit-taking activities in the country;
• The Bill defines “Deposit Taker” and “Deposit” comprehensively;
• “Deposit Takers” include all possible entities (including individuals) receiving or soliciting deposits, except specific entities such as those incorporated by legislation;
• “Deposit” is defined in such a manner that deposit-takers are restricted from camouflaging public deposits as receipts, and at the same time, not to curb or hinder acceptance of money by an establishment in the ordinary course of its business; and
• Being a comprehensive Union Law, the Bill adopts best practices from State laws, while entrusting the primary responsibility of implementing the provisions of the legislation to the State Governments.

Background:

The Finance Minister in the Budget Speech 2016-17 had announced that a comprehensive Central legislation would be brought in to deal with the menace of illicit deposit taking schemes, as in the recent past, there have been rising instances of people in various parts of the country being defrauded by illicit deposit taking schemes. The worst victims of these schemes are the poor and the financially illiterate, and the operations of such schemes are often spread over many States. As per information provided by RBI, during the period between July, 2014 and May, 2018, 978 cases of unauthorized schemes were discussed in State Level Coordination Committee (SLCC) meetings in various States/UTs and were given to the respective regulators/law enforcement agencies in the states. A large number of such instances have been reported from the eastern part of the country. Subsequently, the  Finance Minister in the Budget Speech 2017-18 had announced that the draft bill to curtail the menace of illicit deposit schemes had been placed in the public domain and would be introduced shortly after its finalisation.

The Banning of Unregulated Deposit Schemes Bill, 2018, which was introduced in Parliament on 18th July, 2018 provides a comprehensive legislation to deal with the menace of illicit deposit schemes in the country through, (a) complete prohibition of unregulated deposit taking activity; (b) deterrent punishment for promoting or operating an unregulated deposit taking scheme; (c) stringent punishment for fraudulent default in repayment to depositors; (d) designation of a Competent Authority by the State Government to ensure repayment of deposits in the event of default by a deposit taking establishment; (e) powers and functions of the competent authority including the power to attach assets of a defaulting establishment; (f) Designation of Courts to oversee repayment of depositors and to try offences under the Act; and (g) listing of Regulated Deposit Schemes in the Bill, with a clause enabling the Central Government to expand or prune the list.

IFSC regulator

PIB press release dated 6th February, 2019

The Union Cabinet chaired by the Prime Minister Narendra Modi has approvedestablishment of a unified authority for regulating all financial services in International Financial Services Centres (IFSCs) in India through International Financial Srvices Centres Authority Bill, 2019.

          The first IFSC in India has been set up at GIFT City, Gandhinagar, Gujarat. An IFSC enables bringing back the financial services and transactions that are currently carried out in offshore financial centers by Indian corporate entities and overseas branches / subsidiaries of financial institutions (FIs)to India by offering business and regulatory environment that is comparable to other leading international financial centers in the world like London and Singapore. It would provide Indian corporates easier access to global financial markets. IFSC would also compliment and promote further development of financial markets in India.

          Currently, the banking, capital markets and insurance sectors in IFSC are regulated by multiple regulators, i.e. RBI, SEBI and IRDAI. The dynamic nature of business in the IFSCs necessitates a high degree of inter-regulatory coordination. It also requires regular clarifications and frequent amendments in the existing regulations governing financial activities in IFSCs. The development of financial services and products in IFSCs would require focussed and dedicated regulatory interventions. Hence, a need is felt for having a unified financial regulator for IFSCs in India to provide world class regulatory environment to financial market participants. Further, this would also be essential from an ease of doing business perspective. The unified authority would also provide the much needed impetus to further development of IFSC in India in-sync with the global best practices.

          Taking into account the regulatory requirements of IFSCs and the provisions of the existing laws of financial sector, the Department of Economic Affairs (DEA), Ministry of Finance (MoF) has prepared a draft Bill to set up a separate unified regulator for IFSCs. Following are the main features of the Bill:

Management of the Authority:  The Authority shall consist of a Chairperson, one Member each to be nominated by the Reserve Bank of India (RBI), the Securities Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI) and the Pension Fund Regulatory and Development Authority(PFRDA), two members to be dominated by the Central Government and two other whole-time or full-time or part-time members.

Functions of the Authority:  The Authority shall regulate all such financial services, financial products and FIs in an IFSC which has already been permitted by the Financial Sector Regulators for IFSCs. The Authority shall also regulate such other financial products, financial services or FIs as may be notified by the Central Government from time to time. It may also recommend to the Central Government such other financial products, financial services and financial institutions which may be permitted in the IFSCs.

Powers of the Authority: All powers exercisable by the respective financial sector regulatory (viz. RBI, SEBI, IRDAI, and PFRDA etc.) under the respective Acts shall be solely exercised by the Authority in the IFSCs in so far as the regulation of financial products, financial services and FIs that are permitted in the IFSC are concerned.

Processes and procedures of the Authority: The processes and procedures to be followed by the Authority shall be governed in accordance with the provisions of the respective Acts of Parliament of India applicable to such financial products, services or institutions, as the case may be.

Grants by the Central Govt.:  The Central Govt. may, after due appropriation made by Parliament by law in this behalf, make to the Authority grants of such sums of money as the Central Government may think fit for being utilized for the purposes of the Authority.

Transactions in foreign currency: The transactions of financial services in the IFSCs shall be done in the foreign currency as specified by the Authority in consultation with the Central Govt.

          The establishment of a unified financial regulator for IFSCs will result in providing world-class regulatory environment to market participants from an ease of doing business perspective. This will provide a stimulus for further development of IFSCs in India and enable bringing back of financial services and transactions that are currently carried out in offshore financial centres to India. This would also generate significant employment in the IFSCs in particular as well as financial sector in India as a whole.