Indian Stamp Act

PIB press release dated 21st February, 2019

The President of India, today, gave his assent to the Amendments to the Indian Stamp Act, 1899 which were introduced as part of the Finance Act 2019. The was in fulfillment of the commitment made in the last Union Budget 2018-19 to take reform measures with respect to Stamp Duty regime on financial securities transactions in consultation with the States and make necessary amendments to the Indian Stamp Act, 1899. The Finance Bill 2019 was passed by both the Houses of Parliament, Lok Sabha and Rajya Sabha, on 12^thand 13^th February 2019 respectively.

Objective

The amendments propose to create the legal and institutional mechanism to enable states to collect stamp duty on securities market instruments at one place by one agency (through the Stock Exchanges or Clearing Corporations authorised by the stock exchange or by the Depositories) on one Instrument. A mechanism for appropriately sharing the stamp duty with relevant State Governments based on state of domicile of the buying client is also proposed.

Background

The present system of collection of stamp duty on securities market transactions has led to multiple rates for the same instrument, resulting in jurisdictional disputes and multiple incidences of duty, thereby raising the transaction costs in the securities market and hurting capital formation. This has also given scope for rate shopping and evasion of duty.

In order to facilitate ease of doing business and to bring in uniformity and affordability of the stamp duty on securities across States and thereby build a pan-India securities market, the Central Government, after due deliberations, in exercise of powers under Entry 91 of the List I and Entry 44 of List III of the 7th Schedule of Indian Constitution, has decided to amend the Indian Stamp Act, 1899 to create the legal and institutional mechanism to enable states to collect stamp duty on securities market instruments at one place by one agency (through Stock Exchanges or Clearing Corporations authorized by it or by the Depositories) on one Instrument and develop a mechanism for appropriately sharing the stamp duty with relevant State Governments.

Salient Features

To achieve the rationalisation of stamp duty structures, the amendments, inter-alia, provide for the following structural reforms; —

1. Each security is charged with a duty as specified in Schedule I of the Act. Securities are defined to include all those instruments specified in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956; a “derivative” as defined in clause (a) of Section 45U of the Reserve Bank of India Act, 1934; a Certificate of Deposit, Commercial Usance Bill, commercial paper and such other debt instrument of original or initial maturity up to one year as the Reserve Bank of India may specify from time to time; repo on Corporate Bonds; and any other instrument declared by the Central Government, by notification in the Official Gazette, to be securities for the purposes of this Act.
2. All rates are applicable only on one side (either by the buyer or by the seller but not by both), while presently States charge stamp duty on both sides.
3. While fixing the rates, the rates charged by Maharashtra is taken as the benchmark as Maharashtra accounts for around 70% of the total stamp duty collection in the country. However, the rates are chosen in such a manner that it provides a revenue neutral position to the state governments while reducing overall tax burden for investors.
4. While duty is applicable normally on the transaction value, in case of swaps the first leg of the cash flow; in case of options its premium; and in case of repo on corporate bonds the interest paid by the borrower are considered for levy of duty.
5. For all exchange based secondary market transactions in securities, stock exchanges (SEs) shall collect the duty; and for off-market transactions (which are made for a consideration as disclosed by trading parties) and initial issue of securities happening in demat form, depositories shall collect the duty. In the future event of inter-operability of clearing corporations (CCPs), which provides for linking of multiple CCPs while allowing participants to consolidate their clearing and settlement functions at a single CCP, irrespective of the stock exchange on which the trade is executed, stock exchanges can authorize CCPs to collect stamp duty on behalf of state governments. This is because when inter-operability of CCPs is enabled, investors will be able to buy and sell securities at any stock exchange and clear through any CCP of their choice. If so, the categorization of a transaction as delivery vs. non-delivery based trades so as to fix appropriate levies, can only be done by CCPs. The CCPs are substantially owned by stock exchanges (at least 51% shareholding rests with SEs).
6. State of domicile of the buying client or that of the broking house /depository Participant of the buying client (in case the buyer is outside India, as in the case of Foreign Portfolio Investors (FPIs)) would be taken as the basis for remitting duty to the respective States.
7. Issue of securities is also proposed to be brought into the same tax framework as that of trading of securities, that is, authorising depositories to collect duty from companies and redistributing to States based on the domicile State of subscribers /buyers of security.
8. The depositories /repositories and trading platforms under the jurisdiction of the Reserve Bank of India are also brought into this framework. However, Government Securities (G-secs) and instruments based on G-secs (such as repos/reverse repos on G-Secs) have been excluded from the purview of stamp duty. Platforms, which facilitate liquidity adjustments like call money market have also been excluded.
9. In order to prevent multiple incidence of taxation, it is proposed that no stamp duty shall be collected by the State on any secondary record of transaction associated with a transaction on which the depository / stock exchange has been authorised by the State Government to collect the stamp duty.
10. Tax arbitrage is avoided by providing the same rate of stamp duty for issue or re-issue or sale or transfer of securities happening outside stock exchanges and depositories.
11. Further, rule-making powers are granted to the Central Government for implementing the new collection mechanism. Penalty provisions have also been incorporated.
12. For facilitating the collection, stock exchanges/clearing corporations/depositories shall be eligible for some commission which will be decided in consultation with State Governments

Implementation Strategy / Inter-state Council mechanism

Subsequent to the enactment of the Act, it is proposed to create a Coordination Council under Article 263 of the Indian Constitution by a separate order/notification of the President of India. This Council comprising of representatives from Union and States may be tasked with the responsibility of making recommendations regarding review / revision of stamp duty rates. The Government will also notify the required rules.

Impact

The proposed rationalised and harmonised system is expected to lead to zero tax evasion. Further, cost of collection would be minimised while revenue productivity is enhanced. Adoption of the centralised collection mechanism is expected to bring in not only more revenue but greater stability to the revenue collection by the states. Further, this system will help develop equity markets and equity culture across the length and breadth of the country, ushering in balanced regional development.

Public Interest Directors

SEBI has issued a circular dated 5th February, 2019 regarding the performance review of Public Interest Directors on the Boards of stock exchanges, clearing corporations and depositories. Salient features of this circular are as follows:

1. In respect of Public Interest Directors (PIDs) appointed in the governing board of Stock Exchanges, Clearing Corporations and Depositories (herein after referred as Market Infrastructure Institutions or MIIs), SEBI Board, in its meeting dated June 21, 2018, inter alia, decided that the tenure of PIDs may be extended by another 3 years, subject to performance review in the manner specified by the Board.

2. Based on decisions taken by SEBI Board, the clauses relating to tenure of PID were amended and have been provided in the Regulation 24(3) of Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 [SECC Regulations, 2018] and Regulation 25(3) of SEBI(Depositories and Participants) Regulations, 2018 [SEBI(D&P) Regulations, 2018] as under: Public interest directors shall be nominated for a term of three years, extendable by another term of three years, subject to performance review in the manner as may be specified by the Board:

Provided that post the expiry of term(s) at the recognized stock exchange or the recognized clearing corporation / depository, a public interest director may be nominated for a further term of three years in other recognized clearing corporation or recognized stock exchange, or a depository, only after a cooling-off period of one year:

Provided further that a person may be nominated as a public interest director for a maximum of three terms across recognized stock exchanges / recognized clearing corporations / depositories, subject to a maximum age limit of seventy five years.

3. For complying with the aforementioned regulation, while developing a framework for performance review of PIDs, MIIs need to consider the following: a. Policy for Performance review of PIDs:

i. The Nomination and Remuneration committee (NRC) of the MIIs will be responsible for framing the performance review policy for PIDs.

ii. Such performance review policy shall include criteria for performance evaluation, methodology adopted for such evaluation and analyzing the results, amongst others.

iii. Performance review policy of PID shall include scope for both internal evaluation as well as external evaluation.

iv. Further, as performance review is not a static process and requires periodical review, NRC shall also be responsible for reviewing such performance review policy, at least once in 3 years.

v. Such performance review policy and changes made therein, shall be approved by the governing board of MII.

b. Guiding criteria of Performance Review: As a part of framing performance review policy, NRC shall be primarily responsible for formulation of performance evaluation criteria. The criteria for performance review of PIDs, which shall be considered for both internal evaluation and external evaluation, may be framed by NRC taking into consideration guiding principles provided at Annexure A. These principles would serve as a guidance for MIIs and the same may be adopted by respective MIIs, as considered appropriate, with additional principles, if any.

c. Evaluation mechanism:
i. PIDs shall be subjected to internal evaluation as well as external evaluation, carrying equal weightage.
ii. Internal evaluation: All the governing board members shall evaluate the performance of each PID, on an annual basis at the end of every financial year.
iii. External evaluation: PIDs shall also be subject to external evaluation during their last year of the term in a MII, by a management or a human resources consulting firm. The consultant shall take into consideration the performance of the PID for the entire tenure served in a given MII, at least up to 4 months before expiry of his/ her term. In order to avoid any bias or conflict of interest, external consultant should not be a related party or associated with the MII, the concerned PID or any other governing board members.
iv. Such performance review should be carried out in fair & objective manner and the review should be recorded with clarity and verifiable facts in a standardized format covering all the relevant criteria / aspects.
v. While evaluating conflict of interest of a PID, the governing board of MII shall also take into consideration provisions of Clause 2(d) of Schedule II Part H of SECC Regulations, 2018 and Clause 2(d) of Schedule II Part C of SEBI (D&P) Regulations, 2018 under the head ‘Public Interest Director’; and conflict of interest, if any, of any PIDs should be disclosed to SEBI by the governing board with their comments/ views.

d. Disclosure: Performance evaluation criteria for PIDs shall be disclosed in their annual report as well as on the website of the concerned MII. 

e. Recommendation to SEBI: After taking into account the performance of a PID in the concerned MII, on the basis of internal evaluation and external evaluation both carrying equal weightage, NRC shall consider and recommend extension of his / her tenure to the Governing Board of the MII. The Governing Board of the MII shall in-turn consider and recommend to SEBI if the tenure of the PID is desired to be extended by another term of three years.

f. In addition to the other requirements prescribed in performance review policy of the MIIs along-with norms specified in SECC Regulations, 2018 and SEBI (D&P) Regulations, 2018, the following may be considered by NRCs of MIIs:

i. It shall be ensured that the concerned PID hasn’t remained absent for three consecutive meetings of the governing board and has attended seventy five per cent of the total meetings of the governing board in each calendar year; failing which PID shall be liable to vacate office.

ii. It shall be ensured that PIDs in the governing boards of MIIs are selected from diverse fields of work, in terms of their qualification and experience.

4. The application for extension of term of a PID shall be accompanied with the attendance details of PID in the meetings of various mandatory committees and of the governing board of the MII along-with specific reasons for seeking extension of his / her term as a PID. Such specific reasons shall include facts such as whether the concerned PID, during the term served, had identified any important issues concerning any matter which may involve conflict of interest, or have significant impact on functioning of MII, or may not be in the interest of securities market as a whole, and whether the PID had reported the same to SEBI.

5. In terms of SECC Regulations, 2018 and SEBI (D&P) Regulations, 2018, it is clarified that a minimum of two names shall be submitted by MIIs at the time of making request for appointment of PID and extension of the term of existing PID, including appointment of PID for the purpose of broad basing the governing board, against each such vacancy.

6. It is clarified that the aforementioned norms specify the minimum requirements that have to be complied with by MIIs, however the NRCs of MIIs may adopt additional and more stringent norms while framing a policy for performance review of PIDs. With regard to the detailed criteria for performance evaluation, as provided in Annexure A to the circular, the same shall serve as an illustrative guide for MIIs to frame performance evaluation criteria – both for internal as well as external evaluation, and the same may be adopted by MIIs as considered appropriate, with additional criteria, if any.

7. Additionally, with regard to tenure of PID, following is clarified:
a. The term of existing PIDs serving in a MII for more than three years, can be extended, subject to his / her performance review and a maximum tenure of 6 years as PID in that particular MII. .

b. The term of existing PIDs, that have already served for six years or more in a single MII, shall not be eligible for further extension in that MII.

8. MIIs are directed to:
c. take necessary steps to put in place systems for implementation of the circular, including necessary amendments to the relevant bye-laws, rules and regulations;

d. disseminate the provisions of this circular on their websites; and

e. communicate to SEBI, the status of implementation of the provisions of this circular in the Monthly Report.

Guide for MIIs to frame criteria for performance review of PIDs:

a. Qualifications: The PID’s qualification in area of law, finance, accounting, economics, management, administration or an other area relevant to the financial markets, including any recent updates in this regard.

b. Experience: The PID’s prior experience in area of law, finance, accounting, economics, management, administration or any other area relevant to the financial markets, including any recent updates in this regard.

c. Knowledge and Competency: 
Whether the PID has sufficient understanding and knowledge of the entity in which it operates and the applicable regulatory norms. 

Whether the PID has sufficient understanding of the role, responsibilities and obligations of PID under the relevant regulatory norms. 

How the PID fares across different competencies as identified for effective functioning of Board of the concerned MII (The MII may list various competencies and mark all PIDs against every such competency e.g. Constructive and analytical decision making abilities). 

Whether the PID has sufficient understanding of the risk attached with the business structure.

d. Fulfilment of functions: 
Whether the PID understands and fulfils the functions as assigned to him/her by the Board and the regulatory norms. 

Whether the PID gives views and opinion on various regulatory matters when comments are invited by SEBI through various means.

e. Ability to function as a team: 
Whether the PID is able to function as an effective team- member. 
Whether the PID listens attentively to the contributions of others and gives adequate weightage to the views and perception of other Board members. 
Whether the PID shares good interpersonal relationship with other directors.

f. Initiative: 
Whether the PID actively takes initiative with respect to various areas. 

Whether the PID insists on receiving information necessary for decision making.

Whether the concerned PID keeps himself well informed about the functioning of MII and the external environment in which it operates. 

Whether the PID remains updated in terms of developments taking place in regulatory areas. 

Whether the PID has identified any important issues concerning any matter which may involve conflict of interest for the concerned MII, or may have significant impact on their functioning, or may not be in the interest of securities market, and whether the PID reported same to SEBI. 

Whether the PID appropriately deals with critical matters. g. Availability and attendance: 

Whether the PID is available for meetings of the Board and attends the meeting of Governing board and Committees regularly and timely, without delay. It must be ensured that the concerned PID hasn’t remained absent for three consecutive meetings of the governing board and has attended seventy five per cent of the total meetings of the governing board in each calendar year; failing which the PID shall be liable to vacate office.

h. Commitment:
Whether the PID is adequately committed to the Board and the MII.

i. Contribution: 
Whether the PID has contributed effectively to the entity and in the Board meetings. 

Whether the PID participates in the proceedings of Board meetings keeping in mind the interests of various stakeholders. 

Whether the PID actively deliberates and contributes on proposed business propositions and strategic decisions taking into consideration pros and cons of such propositions, long term outlook, business goals, cost-benefit analysis, etc.

j. Integrity: 
Whether the PID demonstrates highest level of integrity (including conflict of interest disclosures, maintenance of confidentiality, etc.). 

Whether the PID strictly adhere to the provisions of the SEBI SECC Regulations, 2018, SEBI (D &P) Regulations, 2018 and any other regulatory provision, as applicable, along-with the code of conduct and code of ethics prescribed under other applicable regulatory norms. 

Whether disclosures such as dealing in securities and other regulatory disclosures are provided by the PID on timely basis. 

Confirmation on the PID being a Fit & Proper person.

Investment limits of foreign govt. in Indian scrips

SEBI circular dated 10th April, 2018 on this subject. Gist of the circular follows:

1.  SEBI has been monitoring investment by foreign Governments and their related entities viz. foreign central banks, sovereign wealth funds and foreign Governmental agencies registered as foreign portfolio investors (hereinafter referred to as FPIs) in India. Since various stakeholders have been seeking guidance on clubbing of investment limits to be applied to foreign Government/ its related entities, the following clarifications are issued:  

a. What is the investment limit for foreign Government/ foreign Government related entities registered as Foreign Portfolio Investors (FPI)?

Reply:  The purchase of equity shares of each company by a single FPI or an investor group shall be below ten percent of the total paid up capital of the company. [Ref. Regulation 21(7) of FPI Regulations].

b. What is an investor group?

Reply:  In case, same set of beneficial owners are constituents of two or more FPIs and such investor(s) have a common beneficial ownership of more than 50% in those FPIs, all such FPIs will be treated as forming part of an investor group and the investment limits of all such entities shall be clubbed at the investment limit as applicable to a single foreign portfolio investor. [Ref. Regulation 23(3) of FPI Regulations and FAQ 58].

c. How to ascertain whether an FPI is forming part of any investor group?

Reply:  The designated depository participant engaged by an applicant seeking registration as FPI shall ascertain at the time of granting registration and whenever applicable, whether the applicant forms part of any investor group. [Ref. Regulation 32(2)(a) of FPI Regulations].

Further, at para 2.2 in the Form A of first schedule, the applicant seeking registration as FPI is required to furnish information regarding foreign investor group. Accordingly, it is the prime responsibility and obligation of the FPI to disclose the information with regard to investor group.

d. How is the beneficial ownership of foreign Government entities/ its related entities determined for the purpose of clubbing of investment limit?

Reply: The beneficial owner (BO) of foreign Government entities/ its related entities shall be determined in accordance with Rule 9 of Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (hereinafter referred to as PMLA Rules).The said PMLA Rules provide for identification of BO on the basis of two methodologies namely (a) controlling ownership interest (also termed as ownership or entitlement) and (b) control in respect of entities having company or trust structure. In respect of partnership firms and unincorporated associations, ownership or entitlement is basis for identification of BO.

e. Whether two or more foreign Government related entities from the same jurisdiction will individually be permitted to acquire equity shares in an  Indian company up to the prescribed limit of 10%?

Reply:   In case the same set of beneficial owner(s) invest through multiple entities, such entities shall be treated as part of same investor group and the investment limits of all such entities shall be clubbed as applicable to a single FPI. [Ref. Regulation 23(3) of FPI Regulations].

Accordingly, the combined holding of all foreign Government/ its related entities from the same jurisdiction shall be below ten percent of the total paid up capital of the company.

However, in cases where Government of India enters into agreements or treaties with other sovereign Governments and where such agreements or treaties specifically recognize certain entities to be distinct and separate, SEBI may, during the validity of such agreements or treaties, recognize them as such, subject to conditions as may be specified by it. [Ref. Regulation 21(9) of FPI Regulations].

 f. How will the investment by a Foreign Government Agency be treated?
  
 Reply: Foreign Government Agency is an arm/ department/ body corporate of Government or is set up by a statute or is majority (i.e. 50% or more) owned by the Government of a foreign country and has been included under “Category I Foreign portfolio investors”. [Ref. Regulation 5(a) of FPI Regulations].

The investment by foreign Government agencies shall be clubbed with the investment by the foreign Government/ its related entities for the purpose of calculation of 10% limit for FPI investments in a single company, if they form part of an investor group.

g. Whether any investment by World bank group entity viz. IBRD, IDA, MIGA and IFC should be clubbed with the investment from a foreign Government having ownership in such World bank group entity?

Reply: Government of India, vide letter No. 10/06/2010-ECB dated January 06, 2016 has exempted World Bank Group viz.  IBRD, IDA, MIGA and IFC from clubbing of the investment limits for the purpose of application of 10% limit for FPI investments in a single company.

h. Where Provinces/States of some countries with federal structure have set up their separate investment funds with distinct beneficial ownership constituted with objectives suitable for their respective provinces, such funds not only have separate source of financing but also have no management, administrative or statutory commonality. Kindly inform whether investments by these foreign Government entities shall be clubbed?  

Reply:  The investment by foreign Government/ its related entities from provinces/ states of countries with federal structure shall not be clubbed if the said foreign entities have different BO identified in accordance with PMLA Rules.  

i. How will the foreign Government/ its related entities know the available limit for investment, to avoid breach of the limit?

Reply:  The custodian of securities reports the holdings of FPIs/ investor groups to depositories who monitor the investment limits. As such, NSDL is in ready possession of aggregate holdings of FPIs/ investor groups in any particular scrip. [Ref. Regulation 26(2)(d) of FPI Regulations].To this effect, SEBI, vide communication dated November 02, 2017 has already advised DDPs/ custodians of securities to approach NSDL to get information regarding aggregate percentage holdings of the group entities on whose behalf they are acting in any particular company before making investment decisions. SEBI has no objection to the said arrangement for sharing of data.

j. What if the investment by foreign Government/ its related entities cause breach of the permissible limit?

Reply:  The FPIs investing in breach of the prescribed limit shall divest their holdings within 5 trading days from the date of settlement of the trades causing the breach. Alternatively, the investment by such FPIs shall be considered as investment under Foreign Direct Investment (FDI) at the FPI’s option. However, the FPIs need to immediately inform of such option to SEBI & RBI, since they cannot hold equity investments in a particular company under FPI and FDI route, simultaneously.     2. This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. 
 

Monitoring of Foreign investment limits in listed Indian companies

SEBI circular dated 5th April, 2018

1. Foreign Investment in India is regulated in terms of clause (b) of sub-section 3 of section 6 and section 47 of the Foreign Exchange Management Act, 1999 (FEMA) read with Foreign Exchange Management (Transfer or Issue of a Security by a Person resident Outside India) Regulations, 2017 issued vide Notification No. FEMA 20(R)/2017-RB dated November 7, 2017. FEMA prescribes the various foreign investment limits in listed Indian companies. These include the aggregate FPI limit, the aggregate NRI limit and the sectoral cap. The RBI Master Direction (FED Master Direction No. 11/2017-18) dated January 04, 2018 provides a compilation of the instructions issued on Foreign Investment in India and its related aspects under FEMA.    

2. As per FEMA, the onus of compliance with the various foreign investment limits rests on the Indian company. In order to facilitate the listed Indian companies to ensure compliance with the various foreign investment limits, SEBI in consultation with RBI has decided to put in place a new system for monitoring the foreign investment limits. The architecture of the new system has been explained in Annexure A. 

3. The depositories (NSDL and CDSL) shall put in place the necessary infrastructure and IT systems for operationalizing the monitoring mechanism described at Annexure A. The Stock Exchanges (BSE, NSE and MSEI) shall also put in place the necessary infrastructure and IT systems for disseminating information on the available investment headroom in respect of listed Indian companies. 

4. The depositories shall issue the necessary circulars and guidelines for collecting data on foreign investment from listed companies. The system for collecting this data from the companies shall go live on the date of the issuance of this circular. The companies shall provide the necessary data (details of which have been mentioned in Annexure A) to the depositories latest by April 30, 2018. 

5. The new system for monitoring foreign investment limits in listed Indian companies shall be made operational on May 01, 2018. The existing mechanism for monitoring the foreign investment limits shall be done away with once the new system is operationalized. RBI shall issue the necessary guidelines in this regard. 

This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992. 

Minimum Public Shareholding requirements

Circular issued by SEBI dated 10th October, 2017

http://www.sebi.gov.in/legal/circulars/oct-2017/non-compliance-with-the-minimum-public-shareholding-mps-requirements_36216.html


Sub: Non-compliance with the Minimum Public Shareholding (MPS) requirements

1. Regulation 38 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”) mandates a listed entity to comply with the Minimum Public Shareholding(“MPS”) requirements specified in rules 19(2) and 19A of the Securities Contracts (Regulation) Rules, 1957 in the manner as specified by the Board from time to time.

2. In terms of sub regulation (1) of regulation 97 of the Listing Regulations, recognized Stock Exchanges are mandated to monitor compliance by listed entities with the provisions of the Listing Regulations.

3. Sub regulations (1) and (2) of regulation 98 of Listing Regulations inter-alia specify the liability of a listed entity or any other person for contravention and action which can be taken by the respective recognized stock exchange and the revocation of such action, in the manner specified by the Board.

4. In order to maintain consistency and uniformity of approach in the enforcement of MPS norms mandated under regulation 38 of the Listing Regulations, the below mentioned procedure shall be followed by the recognised stock exchanges/depositories, as applicable, with respect to non-compliant listed entities, their promoters and directors: 4.1. The recognized stock exchanges shall review compliance with MPS requirements based on shareholding pattern/ other filings made with them by the listed entities from time to time. Within 15 days from date of observation of non-compliance, the stock exchanges shall issue notices to such entities intimating all actions taken/ being taken as per this circular and advise the entities to ensure compliance.

4.2. On observing non-compliance:

4.2.1. The recognized stock exchange shall impose a fine of ₹5,000/- per day of non-compliance on the listed entity and such fine shall continue to be imposed till the date of compliance by such listed entity.

4.2.2. The recognized stock exchange shall intimate the depositories to freeze the entire shareholding of the promoter and promoter group in such listed entity till the date of compliance by such entity. The above restriction shall not be an impediment for the entity for compliance with the minimum public shareholding norms through the methods specified/approved by SEBI.

4.2.3. The promoters, promoter group and directors of the listed entity shall not hold any new position as director in any other listed entity till the date of compliance by such entity. An intimation to this effect shall be provided to the listed entity by the recognized stock exchange and the listed entity shall subsequently intimate the same to its promoters, promoter group and directors.

4.3. In cases where the listed entity continues to be non-compliant for a period more than one year:

4.3.1. The recognized stock exchange shall impose an increased fine of ₹10,000/- per day of non-compliance on the listed entity and such fine shall continue to be imposed till the date of compliance by such listed entity.

4.3.2. The recognized stock exchange shall intimate the depositories to freeze all the securities held in the Demat account of the promoter and promoter group till the date of compliance by such entity. The above restriction shall not be an impediment for the entity with respect to compliance with the minimum public shareholding norms through the methods specified/approved by SEBI.

4.3.3. Direction as per clause 4.2.3 above shall continue till the date of compliance by such entity.

5. The recognized stock exchange may also consider compulsory delisting of the non-compliant listed entity in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956, the Securities Contracts (Regulation) Rules, 1957 and the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 as amended from time to time.

6. The recognized stock exchanges may keep in abeyance the action or withdraw the action in specific cases where specific exemption from compliance with MPS requirements under the Listing Regulations/ moratorium on enforcement proceedings has been provided under any Act, Court/Tribunal Orders etc.

7. In case it is observed that the listed entity has adopted a method for complying with MPS requirements which is not prescribed by SEBI under clauses (2)(i) to (vi) under SEBI circular No. CIR/CFD/CMD/14/2015 dated November 30, 2015 and approval for the same has not been obtained from SEBI under clause 2 (vii) of the said circular, the recognized stock exchanges shall refer such cases to SEBI.

8. With respect to the fines as stated above:

8.1. The amount of fine realized as per the above structure shall be credited to the "Investor Protection Fund" of the concerned recognized stock exchange.

8.2. If any non-compliant listed entity fails to pay the fine despite receipt of the notice as stated above, the recognized stock exchange may initiate appropriate action.

9. Upon intimation of compliance by the listed entity with the MPS requirements, the concerned recognized stock exchange shall, on being satisfied of such compliance:

9.1. intimate the depositories to unfreeze the shares and other securities of the promoter and promoter group of the listed entity.

9.2. intimate the listed entity that directions imposed in terms of clause 4.2.3 above shall not continue and the listed entity shall subsequently intimate the same to its promoters, promoter group and directors.

9.3. disseminate the information in its website regarding the compliance achieved by the listed entity.

10. The recognized stock exchanges shall periodically disclose on their website the following–

10.1. Names of non-compliant entities, amount of fine imposed, freezing of shares held by the promoters and promoter group and other actions taken against the entity;

10.2. Status of compliance including details regarding fine paid by the entity.

11. The recognized stock exchanges may, having regard to the interests of investors and the securities market, take appropriate action in line with the principles and  procedures laid down in this Circular. Any deviation, therefore, should not dilute the spirit of the policy contained herein and may be made on reasonable grounds to be recorded in writing.

12. In order to ensure effective enforcement of the Listing Regulations, the depositories, on receipt of intimation from concerned recognized stock exchange shall freeze or unfreeze the shareholding of the promoter and promoter group in such entity and the other securities held by them, as applicable.

13. The actions specified in this Circular are without prejudice to the power of SEBI to take action under the securities laws for violation of the MPS requirements.

14. The Stock Exchanges are advised to bring the provisions of this Circular to the notice of listed entities and also to disseminate the same on its website.

15. This Circular shall come into force with immediate effect.

16. For entities which are non-compliant as on date of this circular:

16.1. The stock exchanges shall undertake such action as prescribed under clause 4.2 or clause 4.3 of this circular depending on the period of non-compliance by the entity. However, the fines, as applicable, shall be imposed prospectively from the date of this circular.

16.2. The provisions of this circular shall not apply to those entities where orders have already been passed by SEBI under provisions of Securities and Exchange Board of India Act, 1992/Securities Contracts (Regulation) Act, 1956 in relation to non-compliance with MPS requirements.

17. This Circular is issued under regulations 97, 98, 99 and 101 of Listing Regulations.