In its board meeting on 29 September 2020 SEBI took several important decisions. Among others, it decided that a listed entity must disclose the initiation of a forensic audit ; the delisting of a listed subsidiary would be exempted from the Reverse Book Building process, where it becomes the wholly owned subsidiary of the listed parent pursuant to a scheme of arrangement. It also decided to strengthened the role of a debenture trustee, and to amend the AIF, PIT and Mutual Fund Regulations as under :

• Enhanced role of Debenture Trustees (DTs) : To protect the interests of debenture holders, DTs shall :
  • exercise independent due diligence of the assets on which charge is being created.
  • Convene the meeting of debenture holders for enforcement of security,
  • Join the inter-creditor agreement, as per the framework prescribed by RBI,
  • Continuously monitor asset cover, including obtaining mandatory certificate from the statutory auditor on half yearly basis.

The issuer company in turn will create a recovery expense fund at the time of issuance of debt securities for utilisation by DTs in the event of default, for taking appropriate legal action to enforce the security. Corresponding amendments to the Debenture Trustees Regulations 1993, Issue and Listing of Debt Securities Regulations, 2008 and Listing Obligations and Disclosure Requirements Regulations, 2015 will be made to give effect to these decisions.

• Delisting of subsidiaries: The delisting of a listed subsidiary pursuant to a scheme of arrangement by which it becomes a wholly owned subsidiary of the listed parent will  be exempted from the Reverse Book Building process subject to the following eligibility conditions for availing this route:
  • the listed holding company and the listed subsidiary is in the same line of business;
  • both the companies are compliant with the SEBI (LODR) Regulations, 2015, specifically, regulations 11, 37 and 94 pertaining to processing of the schemes of arrangement;
  • the shares of the parent listed company and the listed subsidiary entity are listed for at least 3 years, and, should not be suspended at the time of taking this route;
  • the subsidiary should have been a listed subsidiary of the listed holding entity for at least three preceding years;

The votes cast by public shareholders of the listed subsidiary in favour of the proposal should be atleast 2 times the number of votes cast against it in terms of the present delisting regulations.

• Disclosure of information related to forensic audit of listed entities: In case of initiation of a forensic audit, listed entities are required to disclose to stock exchanges, without any application of materiality, the fact of initiation of forensic audit (by whatever name called), the name of entity initiating the forensic audit and reasons for the same, as well as the final forensic audit report (other than for forensic audit initiated by regulatory / enforcement agencies), along with comments of the management.

• Amendment to Alternative Investment Funds Regulations, 2012: It is decided to include a definition of ‘relevant professional qualification’; qualification and experience criteria of the investment team may be fulfilled individually or collectively by personnel of key investment team of the Manager; and the constitution of an Investment Committee by the Manager for approving investment decisions, responsibilities of Manager and members of such Investment Committee of an Alternative Investment Fund.

• Amendments to the Prohibition of Insider Trading Regulations, 2015: A time period of up to 3 years has been prescribed for reporting violations by informants under the informant mechanism. Informants are also required to include specific information (such as details of securities, trades by suspect and unpublished  price sensitive information based on which insider trading is alleged).

• Amendments to the Mutual Funds Regulations, 1996: To introduce a code of conduct for Fund Managers, Chief Investment Officers and Dealers of Asset Management Companies (AMCs), in addition to AMCs and Trustees. The Chief Executive Officer will be tasked with the responsibility to ensure that the Code of Conduct is adhered to by all such officers. AMCs will be enabled to become a self-clearing member of the recognised Clearing Corporations to clear and settle trades in the debt segment of recognised stock exchanges, on behalf of its mutual fund schemes.

To refer to the SEBI press release dated 29 September 2020, click here.