The SEBI Board held its meeting in Mumbai on 06.08.2021 under the chairmanship of Shri Ajay Tyagi. The Part-Time Members joined the meeting through video conferencing. The key decisions taken by the Board include as viz.
- Relaxation of the lock-in requirements for promoter shareholding in terms of IPO/FPO
- The merger of Share Based Employee Benefits and Sweat Equity Regulations
- Reduction in disclosure requirement at the time of IPO
- Review of SEBI (LODR) Regulations, 2015
- Rationalisation of compliance requirements for AIFs.
This write-up aims to highlight key takeaways of the decisions taken by the SEBI Board as under:
1. Merger of Share Based Employee Benefits and Sweat Equity Regulations
The Board approved the merger of SEBI (Issue of Sweat Equity) Regulations, 2002 and SEBI (Share Based Employee Benefits) Regulations, 2014 into a single regulation called the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021. Some of the key proposals approved by the Board w.r.t. share-based employee benefits and Sweat Equity regulations are as follows:
a. The companies will be allowed to provide share-based employee benefits to employees, who are exclusively working for such a company or any of its group companies including its subsidiary or its associate.
b. The companies will have flexibility in switching the administration of their schemes from the trust route to the direct route and vice versa with the approval of the shareholders, however, companies must ensure that the switch is not prejudicial to the interest of the employees.
c. The time period for appropriating the unappropriated inventory of the trust has been extended from the existing 1 year to 2 years subject to the approval of the Compensation/Nomination and Remuneration Committee for such extension.
d. To dispense with the minimum vesting period and lock-in period for all share benefit schemes in the event of death or permanent incapacity (as defined by the company) of an employee.
e. The maximum yearly limit of sweat equity shares that can be issued by a company listed on the mainboard has been prescribed at 15% of the existing paid-up equity share capital within the overall limit not exceeding 25% of the paid-up capital at any time.
Further, in the case of companies listed on the Innovators Growth Platform (“IGP”), the yearly limit will be 15% and the overall limit shall be 50% of the paid-up capital at any time. This enhanced overall limit for IGP shall be applicable for 10 years from the date of the company’s incorporation.
2. Relaxation in lock-in of promoters shareholding
The Board decided to relax the lock-in requirements for promoters. Now the lock-in requirement of promoters’ shareholding to the extent of minimum contribution (i.e. 20% of post-issue of capital) has been reduced from 3 years to 18 months from the date of allotment in an IPO/FPO in certain cases.
3. Certain disclosure obligations for acquirers/promoters done away with
SEBI has approved of an amendment to the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. w.e.f. April 01, 2022, the board has decided to do away with certain disclosure obligations for the acquirers/promoters, pertaining to:
a. acquisition or disposal of shares aggregating to 5% and any change of 2% thereafter,
b. annual shareholding disclosures, and
c. creation/invocation/release of encumbrance registered in depository systems under Takeover Regulations
These relaxations have been done on account of the implementation of the System Driven Disclosures (“SDD”). Under SDD, relevant disclosures are disseminated by the stock exchanges based on the aggregation of data from the depositories without human intervention.
4. Reduction in disclosure requirement at the time of IPO
The Board further decided to approve the following measures to reduce the disclosure requirements at the time of IPO:
a. In the case where the promoter of the issuer company is a corporate body, the definition of promoter group to be rationalized to exclude companies having common financial investors.
b. The disclosure requirements in the offer documents, in respect of Group Companies of the issuer company, shall be rationalized to exclude disclosure of financials of top 5 listed/unlisted group companies. These disclosures will continue to be made available on the website of the group companies.
5. Shifting from concept to ‘promoter’ to ‘person in control’ or ‘controlling shareholders’ concept
The Board also agreed in principle to the proposal for shifting from the concept of the promoter to ‘person in control’ or ‘controlling shareholders’ in a smooth, progressive and holistic manner. To this effect, the Board advised SEBI to engage with other regulators to ascertain and resolve regulatory hurdles, if any. The board decided to prepare draft amendments to securities market regulations and analyze the impact of the same, further deliberate at the SEBI’s primary market advisory committee (PMAC) and develop a roadmap for implementation of the proposed transition.
6. Review of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
The Board considered and approved the proposals relating to the review of SEBI (LODR) Regulations, 2015 pertaining to issuers who have listed Non-Convertible Debt Securities, Non- Convertible Redeemable Preference Shares, Perpetual Debt Instruments and/ or Perpetual Non-Cumulative Preference Shares. These amendments aim to improve transparency, rationalization and removing redundant provisions so as to provide further robustness to the corporate bond market.
7. Rationalisation of compliance requirements for AIFs
With a view to simplify and rationalise compliance requirements for Alternative Investment Funds (AIFs) and to provide investment flexibility and streamline regulatory processes, the Board approved certain amendments to SEBI (Alternative Investment Funds) Regulations, 2012, which include:
a. Category I AIF –Venture Capital Funds (VCFs) to invest at least 75% of investable funds in unlisted equity shares and equity-linked instruments of venture capital undertakings or in companies listed or proposed to be listed on an SME exchange or SME segment of an exchange. The existing investment restrictions on the residual portion of investable funds of VCFs have been done away with;
b. The minimum amount of grant of INR 25 Lakhs stipulated for Category I AIFs –Social Venture Funds shall not apply to grants received from Accredited Investors;
c. AIFs can also issue partly paid-up units to investors to represent the portion of committed capital invested;
d. AIFs to file private placement memorandum with SEBI through registered Merchant Bankers.