SEBI-Simplification of Offer Document and Key Information Memorandum of Mutual Funds Scheme

SEBI/IMD/CIR No. 5/126096/08 - May 23, 2008

To,

All Mutual Funds Registered with SEBI

Association of Mutual Funds in India (AMFI)

Sub: Simplification of Offer Document and Key Information Memorandum of Mutual Funds Scheme

1. All offer documents (ODs) of Mutual Fund schemes filed with SEBI in terms of Regulation 28 (1) of SEBI (Mutual Funds) Regulation 1996 (hereinafter referred to as Regulation) are prepared as per the format prescribed in circular dated March 31, 1998. The format for memorandum containing key information (Key Information Memorandum/KIM) of Mutual Fund schemes is prescribed in the circular dated July 28, 2004.

2. AMFI had set up a committee to examine the ways of simplification of OD and KIM to make it more reader friendly. The committee recommended that the existing OD may be split into two parts i.e. Statement of Additional Information (SAI) and Scheme Information Document (SID). SAI shall incorporate all statutory information on Mutual Fund.

3. The formats of Standard OD and KIM specified through circulars dated March 31, 1998 and July 28, 2004 respectively stand revised. Henceforth, Mutual Funds shall prepare SID, SAI and KIM in the simplified format enclosed with the circular. Contents of SID,SAI, and KIM shall follow the same sequence as prescribed in the format.

4. Applicability

i. All ODs of mutual fund schemes filed with SEBI in terms of Regulation 28 (1) on or after June 1, 2008, shall be prepared in the aforesaid format. Accordingly, the format of SID, SAI and KIM enclosed here shall be applicable for draft OD filed with SEBI on or after June 1, 2008.

ii. OD of any scheme already filed with SEBI and for which SEBI has not yet suggested modifications as required under Regulation 29 (2) shall, as far as possible, be recast in the format of the SID and SAI after receiving observations (final) from SEBI.

iii. The schemes for which the observations (final) have already been received from SEBI, can use the old format of the OD, if they are launched on or before July 31, 2008. Such schemes which are launched with the old format of the OD shall adopt the SID along with the other schemes as mentioned in clause v.

iv. A single SAI (common for all the schemes) shall be filed with SEBI as a one time filing. The SAI shall be filed along with first draft SID for any scheme filed on or after June 1, 2008. The SAI can also be filed separately in case no scheme draft SID has been filed with SEBI as soon as possible but not later than July 31, 2008. After receiving the comments, if any, from SEBI, AMC shall upload the SAI on its website.

5. The existing schemes shall adopt the SID and KIM format as soon as possible but not later than 12 months from the date of issuance of this circular. A confirmation in this regard shall be given in the half yearly trustee report.

5. Updation of SID and KIM – Henceforth, clause 1 of circular dated February 9, 2001 pertaining to 'Updating the offer document on a continuous basis' shall not be applicable. The procedure for updation of SID and KIM shall be as follows:

i. For the schemes launched in the first half of a financial year, the SID shall be updated within 3 months from the end of the financial year. However, for the schemes launched in the second half of a financial year, SID shall be updated within 3 months of the end of the subsequent financial year. (For example, for a fund launched in May, 2008 the SID shall be updated by June 30, 2009 and for a fund launched in December 2008, the SID shall be updated by June 30, 2010) Thereafter, the SID shall be updated once every year.

ii. The procedure to be followed in case of changes to the scheme shall be as under:

a. In case of change in fundamental attributes in terms of Regulation 18 (15A) SID shall be revised and updated immediately after completion of duration of exit option.

b. In case of other changes:

· The AMC shall be required to issue an addendum and display it on the website.

· The addendum shall be circulated to all the distributors/ brokers/Investor Service Centre (ISC) so that the same can be attached to all KIM and SID already in stock till it is updated.

· Latest applicable addendum shall be a part of KIM and SID. (For e.g. in case of changes in load structure the addendum carrying the latest applicable load structure shall be attached to all KIM and SID already in stock till it is updated).

· A public notice shall be given in respect of such changes in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of region where the Head Office of the Mutual Fund is situated.

· Further account statements shall continue to include applicable load structure.

iii. A copy of all changes made to the scheme shall be filed with SEBI within 7 days of the change.

iv. KIM shall be updated at least once a year and shall be filed with SEBI forthwith.

6. Updation of SAI – The procedure for updation of SAI shall be as follows:

i. Mutual Funds shall be required to prepare SAI and upload the same on their website and on AMFI website. The printed copy of the same shall be made available to the investor on request. SAI shall be updated within 3 months from end of financial year and filed with SEBI.

ii. Any material changes in the SAI shall be made on an ongoing basis by way of updation on the Mutual Fund and AMFI website. SEBI shall be intimated of the changes made in the SAI within 7 days. The effective date for such changes shall be mentioned in the updated SAI.

7. Other requirements

i. Application forms for schemes of mutual funds for which the offer documents are filed with SEBI shall be accompanied by the KIM in terms of Regulation 29 (4). KIM shall be printed at least in 7 point font size with proper spacing for easy readability.

ii. With effect from June 1, 2008, draft SID of schemes of mutual funds filed with SEBI shall also be available on SEBI's Internet site – www.sebi.gov. in for 21 working days from the date of filing. AMC shall submit a soft copy of SID to SEBI in HTML or PDF format, for this purpose. AMC shall be fully responsible for the contents of soft copies of the SID. AMC shall also submit an undertaking to SEBI while filing the soft copy of SID certifying that the information contained in the soft copy matches exactly with the contents of the hard copy.

iii. SID must reach SEBI before it is issued for circulation. If the printed SID is at variance with the SID which has been filed with SEBI and the variation is in the nature of material alteration or the suggestions made by SEBI under Regulation 29 (2), SEBI shall order immediate withdrawal of the SID from circulation and shall publicise such withdrawal of the SID.

iv. Validity of SID – The scheme shall be launched within six months from the date of the issuance of observations (final) from SEBI. If the AMC intends to launch the scheme at a date later than six months, a fresh SID under Regulation 28 (1) alongwith filing fees shall be filed with SEBI. Further, it is clarified that the mutual funds must file their replies to the modifications suggested by SEBI on draft SID as required under Regulation 29 (2), if any, within six months from the date of the letter. In case of lapse of six-month period, the mutual funds shall be required to file fresh SID alongwith filing fees.

8. Standard Observations – In order to ensure minimum level of disclosures in the SID and SAI, the revised and updated format of Standard Observations as on date of issuance of this circular are enclosed. SEBI may revise the Standard Observations from time to time and in that case the date of revision shall also be mentioned. While filing the SID and SAI, AMC shall highlight and clearly mention the page number of the SAI and SID on which each standard observation has been incorporated.

9. Easy Availability of Offer Document – It has been observed that the ODs are not readily available with all distributors/ISCs of Mutual Funds and investors find difficult to get the same. Trustees and AMCs shall ensure that the SID of the schemes and SAI are readily available with all the distributors/ISCs and confirm the same to SEBI in the half yearly trustee report.

10. SEBI circulars IMARP/MF/CIR/ 06/793/98 dated March 31, 1998, MF/CIR/12/109/ 2000 dated February 22, 2000, MFD/CIR No.2 / 205 /01 dated April 27, 2001, MFD/CIR/ 06 / 275 / 2001 dated July 9, 2001 and SEBI/IMD/CIR No.10/16521/ 04 dated July 28, 2004 stand withdrawn.

11. This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

Amendments in SEBI DIP Guidelines

Dear All,

The SEBI has made certain amendments in SEBI (Disclosure and Investor Protection) Guidelines, 2000 vide Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated 29 ^th November 2007 (Today). The gist of amendments is;

1. Introduction of Fast Track Issues (FTIs).

As per existing SEBI (DIP) Guidelines, if existing listed Company wants raise funds from the public either through rights issue or follow on public issue, it needs to comply with procedural formalities as in the case of Initial Public Offering (IPO). The SEBI has come out with Press Release relating FTIs, as it is felt that there is a need to enable well established and compliant listed companies to access Indian primary market in a time effective manner through follow-on public offerings and rights issues. Accordingly, it has been decided to enable listed companies satisfying certain specified requirements to make Fast Track Issues (FTIs).

The amendments made vide this circular to enable well established listed Companies to proceed with follow-on public offering / rights issue by filing a copy of the Red Herring Prospectus (in case of book built issue) / Prospectus (in case of fixed price issue) registered with the Registrar of Companies or the letter of offer filed with Designated Stock Exchange, as the case may be, with SEBI and stock exchanges. Such companies are not required to file draft offer document with SEBI and stock exchanges.

2. Amendments regarding Issue of Indian Depository receipts (IDRs).

As per existing provisions only QIP can apply in an IPO of IDRs. Now, vide this amendment it has been decided to allow all categories of investors to apply in IDR issues, subject to the condition that;

• at least 50% of the issue being subscribed by QIBs, and
• the balance being made available for subscription to other categories of investors at the discretion of the issuer, which shall be disclosed in the prospectus. Further, it has been decided to reduce the minimum application value in IDR from Rs. 2,00,000/- to Rs. 20,000/- and to carry out certain consequential amendments to SEBI (DIP) Guidelines pursuant to amendments to IDR rules by the Ministry of Corporate Affairs.

3. Quoting of PAN mandatory:

Presently, as per SEBI (DIP) Guidelines, all applicants in public and rights issues are required to disclose their PAN/GIR in the application form if they are making an application for a value exceeding Rs. 50,000/-. It has been decided to extend the requirement of quoting PAN in application forms to all applicants, irrespective of the application value.

4. Discount in issue price for retail investors / retail shareholders:

Presently, SEBI (DIP) Guidelines do not provide for issuance of shares at differential price to investors within the net public offer category. SEBI has been receiving requests to permit issuance of shares to retail individual investors / retail individual shareholders at a price lower than that being offered to other categories. It has now been decided to introduce a provision in SEBI (DIP) Guidelines, permitting companies making public issues to issue securities to retail individual investors / retail individual shareholders at a discounted price, provided that such discount does not exceed 10% of the price at which securities are issued to other categories of public.

5. Definition of "Retail individual shareholder" for listed companies:

Presently, listed companies making public issues can make reservation on competitive basis for its existing shareholders who, as on the record date, are holding shares worth up to Rs. 50,000/-. However, no limit has been set on the value of the application that can be made by such shareholders. It has now been decided to define the term "Retail Individual Shareholder" to mean a shareholder whose shareholding is of value not exceeding Rs. 1,00,000/- as on the day immediately preceding the record date, and who makes application or bids in a public issue for value not exceeding Rs 1,00,000/-.

6. Clarification on the term CEO / CFO:

SEBI (DIP) Guidelines requires all directors, CEO and CFO of the issuer company to certify that disclosures made in the offer document are true and correct. It is now clarified that the terms "CEO" and "CFO" in SEBI (DIP) Guidelines shall have the same meaning as assigned to them in clause 49 of the Equity Listing Agreement.

7. Deletion of the chapter on "Guidelines for Issue of Capital by Designated Financial Institutions (DFIs)":

SEBI had introduced separate guidelines in 1992 for primary issuances by DFIs, to place companies / corporations / institutions engaged mainly in financing of developmental activities and playing a catalytic role in the infrastructure development of the country on a different footing. compete on equal footing with private entities and it is felt that DFIs, as a concept, may have outlived its utility. It has therefore been decided to remove the special dispensations given to DFIs by deleting the chapter on "Guidelines for Issue of Capital by DFIs" from SEBI (DIP) Guidelines.

8. Monitoring of issue proceeds:

Presently, as per SEBI (DIP) Guidelines, every issuer making an issue of more than Rs. 500 crores is required to appoint a monitoring agency, which is required to file a monitoring report with SEBI for record purpose. It has been decided that this provision shall not apply to (i) issues by banks and public financial institutions and (ii) offers for sale. Further, it has been decided that the

monitoring agency shall henceforth be required to file the monitoring report with the issuer company and not with SEBI, so as to enable the company to place the report before its Audit committee.

9. Amendments to Guidelines for Preferential Issues:

It has been decided that listed companies intending to make preferential allotment shall be required to obtain PAN of each of the applicants of the preferential issue before making the preferential allotment.

10. Miscellaneous amendments:

· SEBI issues standard observations as a supplement to issue-specific observations on each and every draft offer document filed with SEBI. These standard observations are being rationalised / reviewed. Accordingly, it has been decided to amend SEBI (DIP) Guidelines to incorporate certain clauses from the standard observations, essentially those pertaining to confirmations, undertakings, documents, information, etc., to be submitted by the Lead Manager/s to the Issue while filing an offer document with SEBI. Lead Managers shall also be required to file as an annexure to the due diligence certificate, a detailed check list indicating compliance of each of the clauses of the relevant chapters of SEBI (DIP) Guidelines.

· SEBI (DIP) Guidelines contain certain provisions, which have become redundant or need to be aligned with other provisions of SEBI (DIP) Guidelines / the Companies Act, 1956 or in respect of which, there have been requests for exemption on regular basis. Consequently, it has been decided to fine-tune the guidelines by modifying such clauses.

Thanks & Regards
Alagar
Karvy Investor Services Limited

No NOC while changing MF Distributor, additional open ended plans as addendum or scheme, revised timelines, investor documents to be maintained by AMC – SEBI Circular

I. Sub: AMFI Guidelines for change of mutual fund distributor vide SEBI/IMD/CIR No./ 13/187052 /2009 dated 11th December 2009

It has come to the notice of SEBI that unwarranted hardship (like mandating No Objection Certificate - NOC) is being caused to investors in mutual fund schemes who wish to switch from an existing mutual fund distributor to
either another mutual fund distributor or opt to deal direct.

 

Now, Mutual Funds (MFs) and Asset Management Companies (AMCs) are advised to ensure compliance with the instruction of the investor informing his desire to change his distributor and / or go direct, without compelling that investor to obtain an NoC from the existing distributor.

 

II. Sub: Modifications in the existing SEBI circulars for Mutual Funds vide SEBI / IMD / CIR No 14 / 187175/ 2009 dated 15th December 2009

Over the years, certain circulars/ guidelines have been revised in line with the requirements of investor protection, market development or effective regulation. In continuation of the effort and in consultation with AMFI, modifications in following existing circulars have been carried out (For modification(s), please refer Annexure I):

1. Payment of interest on delay in dispatch of redemption or repurchase proceeds - SEBI Circular SEBI/ MFD/CIR/2/266/2000 dated May 19, 2000.

1. Guidelines for participation by Mutual Funds in Stock Lending Scheme- SEBI circular MFD/CIR/01/047/99 dated February 10, 1999

1. Consolidation of schemes - SEBI Circular No. SEBI/MFD/CIR No.5/12031/03 dated June 23, 2003

1. Launch of Additional Plan under existing Schemes- SEBI Circular No. MFD/CIR No.12/175/01 dated February 15, 2001

1. Guidelines for Investment/Trading in Securities by Employees of Asset Management Company & Mutual Fund Trustee Companies - SEBI Circular No. MFD/CIR No.4/216/2001 dated May 8, 2001

1. Guidelines for Advertisement by Mutual Funds- SEBI Circular No. MFD/CIR/4/51/2000 dated June 5, 2000

1. Advertisements by Mutual Funds - SEBI Circular No. SEBI/MFD/CIR No.6/12357/03 dated June 26, 2003.

The modifications are highlighted hereunder,

1. Asset Management Companies (AMCs) to dispatch dividend warrants within 30 days of the declaration of the dividend.It is clarified that, in the event of failure of dispatch of dividend within the stipulated 30 day period, the AMC(s) shall be liable to pay interest @ 15% per annum to the unit holders.  Further, a STATEMENT OF INTEREST PAID TO THE INVESTORS FOR DELAYS IN DESPATCH OF DIVIDEND shall be sent to SEBI with Compliance Test Reports.
2. Valuation of collateral securities under Participation by MF in Stock lending scheme will be prescribed by SEBI.
3. The AMCs shall maintain records of dispatch of the letters to the unitholders giving them the option to exit at prevailing NAVs without exit loads and the responses received from them and shall be filed with SEBI within 21 days from the closure of Exit Option.
4. Additional plans sought to be launched under existing open ended scheme can be issued as an ADDENDUM, but if it has a substantially different characteristic, it shall be issued as a separate SCHEME.
5. Time periods are shortened.
6. All other provisions of the aforesaid SEBI circulars remain unchanged, where applicable. These modifications shall be applicable from the date of issue of this circular.
7. Details in SEBI / IMD / CIR No 14 / 187175/ 2009 dated 15th December 2009

III. Sub: Transactions through some mutual fund distributors and compliance with the SEBI circular on AML vide SEBI/IMD/CIR No.12 /186868 /2009 dated 11th December 2o09

It has recently come to our attention that all documentation related to the investor including Know your Client, Power of Attorney (PoA) in respect of transactions/requests made through some mutual fund distributors is not available with the AMC/RTA of the AMC and that the same is stated to be maintained by the respective distributors.

In view of the above, we reiterate that the requirements as mentioned in the master circular ISD/AML/CIR-1/2008 dated December 19, 2008 issued by SEBI is applicable to the Mutual Funds/ AMCs and hence maintaining all the documentation pertaining to the unitholders/investor is the responsibility of the AMC.

Thus, all MF and AMCs are advised to confirm whether all the investor related documents are maintained/ available with them. If not, and to the extent of and relating to such investor accounts/folios where investor related documentation is incomplete/inadequate/not available, then the trustees of the mutual funds are advised to ensure the following:
a. No further payment of any commissions, fees and / or payments in any other mode should be made to such distributors till full compliance/ completion of the steps enumerated herein.
b. Take immediate steps to obtain all investor/ unit holders documents in terms of the AML/ CFT, including KYC documents / PoA as applicable
c. Take immediate steps to obtain all supporting documents in respect of the
past transactions.
d. On a one time basis, send statement of holdings and all transactions since
inception of that folio in duplicate to the investor and seek confirmation from
the unit holders on the duplicate copy.
e. Set up a separate customer services mechanism to handle/ address queries and grievance of the above mentioned unitholders.

Pending completion of documentation, exercise great care and be satisfied of
investor bonafides before authorizing any transaction, including redemption, on such accounts / folios.

The trustees shall forthwith confirm to SEBI that the steps have been taken to address the above and also send a status to SEBI as and when process is
completed to satisfaction.

SEBI interprets whether offer to 50 or more persons amounts to public & thereby mandates listing under Companies Act, irrespective of intention to list its securities with Stock Exchange - reading together Section 55A with 73

On 24th November 2010, it happened!!!  SEBI, the watch dog of Indian Capital Market did its part of research on Companies Act to understand the powers which are already vested with it and has come out [barking :-)] with brilliant interpretations. 

SEBI takes a re-look on

Section 55A, 56, 60B, 67, 73 & 81(1A) of Companies Act, 1956

DIRECTIONS UNDER SECTIONS 11(1), 11(4)(b), 11A(1)(b) AND 11B issued under SEBI ACT, 1992 READ WITH REGULATION 107 OF SEBI (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS - ICDR) REGULATIONS, 2009 IN THE MATTER OF ISSUANCE OF OPTIONALLY FULLY CONVERTIBLE DEBENTURES (OFCD) BY SAHARA INDIA REAL ESTATE CORPORATION LIMITED (SIREC) AND SAHARA HOUSING INVESTMENT CORPORATION LIMITED (SHICL).  Lets refer SIREC & SHICL as “Company”.

The Company’s point of view

a. OFCD issuance of SIRECL and SHICL do not come under the purview of SEBI as Section 55A of the Companies Act, 1956 delegates the administrative power to SEBI only with respect to the listed public companies and those public companies which are intending to get their securities listed in India. Since the said companies have stated in the RHP filed with the RoC that, they do not intend to get the OFCDs listed in any stock exchanges in India or abroad, the issuance of OFCDs does not come under the purview of SEBI.
Note: OFCD is a security and is convertible into Equity Shares and is not in the nature of “Non-Convertible Debt Security”.

b. Issuance of OFCDs was made on private placement basis and is restricted to a select group (however large, they may be), it ceases to be an offer to the public.
c. When securities are issued to more than 50 persons, by following the procedure laid down under Section 60B of the Companies Act, 1956, by circulation of information memorandum and filing of Red Herring Prospectus (RHP) with the RoC, it would not be necessary to list the securities so offered and the issue shall remain outside the purview of SEBI.

What did SEBI analyse?

a) Whether the impugned OFCD offers have been made to the public and if so, whether listing of the OFCDs, so offered, is mandatory?
b) Whether Section 60B of the Act provides “an alternative route” for raising capital without complying with Section 73 of the Act and other SEBI requirements, as contended by the companies?

What does Companies Act say?

Section 67: The essence of this section is that “who can apply for securities in response to invitation shall be checked to determine whether it is an offer to public” and lays certain criteria for that.

The said Section explicitly states that any reference in the Act or in the articles of a company to offering (or inviting to subscribe) for shares or debentures to the public shall be construed as including a reference to offering them (or inviting them to subscribe) to any section of the public, whether selected as members or debenture holders of the company concerned or as clients of the person issuing the prospectus or in any other manner.

Provisio to Section 67(3) as summarised by SEBI:  Even if an issue is made by way of private placement to 50 or more persons, it would be deemed to be a public issue (“deemed to be a public issue”) irrespective of whether it was offered to public at large or to just a section of the public chosen, in whatever manner.

Further, any further issue of capital, even pursuant to a resolution made under Section 81(1A) of the Act (dealing private placement to select group of persons), is subject to the provisions of Part III of the Act (dealing with Prospectus), if the offer is made to 50 persons or more.

The filing of a prospectus under the Act signfies the intention of the issuer to raise funds from the public. – SEBI infers!!!

Whether listing is mandatory for all public issues?

As per Section 73(1) of the Act, every company intending to offer shares or debentures to the public for subscription by the issue of a prospectus shall, before such issue, make an application to one or more recognized stock exchanges for permission for (listing of) the shares or debentures intending to be so offered to be dealt with in a stock exchange or each such stock exchange.

As per Section 73(2) of the Act, where any listing permission is not applied, as observed in the present case, the companies are required to refund all the money received as subscription within the stipulated time.

The intention of the companies to list or not is immaterial as it is mandated by the Act – SEBI infers!!!

SEBI Order analyses Section 55A & Section 73

The words “intend to get their securities listed” in Section 55A(1) (b) of the Act (which gives the power to SEBI) is clearly synonymous with the words “intend to offer their securities to public” (as per Section 73), as law mandates compulsory listing in case of public issues and specifies that any condition to waive this requirement is void [as per Section 73(4)].

If to 50 or more persons, then to 1000 or more persons!!!

Once the company is mandated to list, it shall comply with the requirements of SEBI ICDR regulation as the debentures are convertible into Equity.  Reading Section 67 with ICDR:

Once the issuer decides to offer its securities to 50 or more persons, then the issue is an offer to public at large, complying with the provisions prescribed in the ICDR Regulations which mentions that an issuer shall not make an allotment pursuant to a public issue if the number of prospective allottees is less than 1000, to ensure there is sufficient liquidity in the scrip post listing.

In such case, it shall file RHP with SEBI atleast 30 days in advance before filing the same with RoC – SEBI infers!!!

SEBI tooks pains to highlight the clauses of ICDR not complied with, in this link:

http://www.sebi.gov.in//cmorder/SaharaAnnexure.pdf

SEBI also claims the Prospectus filed by the company is not fully adequate with requisite legal information.  On analysing the above mentioned violation of Companies Act & some other observations by SEBI on the financials had issued an ad interim, ex-parte Order vide WTM/KMA/CFD/316/11/2010.

The Company claims unlisted companies cannot come under the purview of SEBI

The company deems the order as imprudent and irrational vide its RESPONSE as this order created a confusion among public that Sahara’s IPO is rejected (which is not at all the case though!!!).  Further, in the interest, image and goodwill of entire Sahara India Pariwar, the company has disclosed the details in its RESPONSE.

SEBI’s Order: WTM/KMA/CFD/316/11/2010

Sahara’s Response: RESPONSE

This case may give an answer to the BERMUDA TRIANGLE of what if issue to 50 or more persons but less than 1000 persons. 

• Will the company take the Writ route to re-examine the jurisdiction of SEBI with respect to Section 55A read with Section 73?
• Believe, this cannot have the same HAPPY ENDING with Consent Order at later stages. 

We shall await for the Securities Appellate Tribunal’s (SAT) interesting response. 

Investing in Art is an art and needs registration .. SEBI Cautions

Investing in Art is an art and needs registration ..says SEBI

SEBI has advised investors with regard to their investments in "Art Funds" that "Art Funds" are "Collective Investment Schemes" as defined under the SEBI Act. At present, no entity has registered with SEBI, under the SEBI (Collective Investment Schemes) Regulations.

Launching / floating of "Art Funds" or Schemes without obtaining registration from SEBI amounts to violation of SEBI Act and Regulations. Appropriate actions, civil and criminal, under the SEBI Act may be taken by SEBI against such funds / companies.

This message is issued by SEBI in the interest of investors with regard to their

investments in Art Funds, funds/schemes launched by companies or any entity formed for the purpose. From the analysis of the characteristics of 'art funds' these are 'collective investment schemes' as defined under section 11AA (2) of the SEBI Act, 1992. The schemes/funds have been launched / floated by these entities without obtaining a certificate of registration in accordance with the SEBI (Collective Investment Schemes) Regulations, 1999 (the Regulations).

In terms of section 12 (1B) of the SEBI Act, 1992 no "person" shall sponsor or cause to be sponsored or cause to be carried on a collective investment scheme unless he obtains a certificate of registration from the Board in accordance with the regulations.

Regulation 3 of the Regulations permits only a 'Collective Investment Management

Company' having certificate of registration from Board to launch collective investment scheme.

Thus, only a company which has been granted certificate of registration by the

Board in accordance with the Regulations can launch or sponsor a collective investment scheme. In other words, for a collective investment scheme to raise money from the public it is prerequisite that the entity must (a) be a company and (b) registered with SEBI as a Collective Investment Management Company.

Therefore, the launching/ floating of the 'art funds' or schemes without obtaining a

certificate of registration from the Board in terms of the provisions of the Regulations

amounts to violation of the provisions of section 12 read with section 11 and 11AA of the SEBI Act and the Regulations. For such violations, appropriate actions, civil and

criminal, under the SEBI Act may be taken by SEBI against such funds/companies.

SEBI (Intermediaries) Regulations, 2008 from 26th May 2008 & repealed SEBI (Criteria for Fit and Proper Persons) Regulations, 2004 and SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002

SEBI has undertaken redrafting project to consolidate the common requirements which apply to all intermediaries in so far as the common requirements are concerned. Given the fact that many requirements and obligations of most intermediaries are common, SEBI has notified SEBI (Intermediaries) Regulations, 2008 on May 26, 2008. The salient features of the Regulations are as under : -

(a) The Regulations put in place a comprehensive regulation which will apply to all intermediaries. The common requirements such as grant of registration, general obligations, common code of conduct, common procedure for action in case of default and miscellaneous provisions have been provided in the approved Intermediaries Regulations.

(b) The registration process has been simplified. An applicant may file application in the prescribed format alongwith additional information as required under the relevant regulations along with the requisite fees. The existing intermediaries may, within the prescribed time, file the disclosure in the specified Form. The disclosures shall be made public by uploading the information on the website specified by SEBI. The information of commercial confidence and private information furnished to SEBI shall be treated confidential.  In the event intermediary wishes to operate in a capacity as an intermediary in a new category, such person may only file the additional shortened forms disclosing the specific requirements of the new category as per the relevant regulations.

(c)  The Fit and Proper criteria have been modified to make it principle based. The common code of conduct has been specified at one place.

(d).The registration granted to intermediaries has been made permanent subject to the compliance of the SEBI Act, regulations, updation of relevant disclosures and payment of fees.

(e).Procedure for action in case of default and manner of suspension or cancellation of certificate has been simplified to shorten the time usually faced by the parties without compromising with the right of reasonable opportunity to be heard. Surrender of certificate has been enabled without going through lengthy procedures.

(f). While common requirements will be governed by the new Regulations, the intermediaries specific requirements will continue to be as per the relevant regulations applicable to individual intermediaries. The relevant regulations will be amended to provide for the specific requirements. The SEBI (Intermediaries) Regulations, 2008 shall come into force in relation to different classes of intermediaries on the date notified by SEBI.

(g).SEBI (Criteria for Fit and Proper Persons) Regulations, 2004 and SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 have been repealed with effect from May 26, 2008.  The Fit and Proper Person criteria and the procedure as specified in the new Regulations for action in case of default shall apply with effect from               May 26, 2008.
 

The full text of the SEBI (Intermediaries) Regulations, 2008 is available on the SEBI website: www.sebi.gov.in


Source: PR No.125/2008 dated 19th June 2008

--
Thanks & Regards

Alagar
Investment Banking
Karvy Investor Services Limited
Chennai
Moble: 919884731993/ 919790906827
 

Supreme Court gives statutory shield to SEBI from SAT

THE Supreme Court on Tuesday said the Securities Appellate Tribunal (SAT) has no discretionary power to interfere with orders passed by market regulator Securities & Exchange Board of India (SEBI). Allowing SEBI’s plea, the court said the tribunal has to do what is prescribed under the statute.

“When something is to be done statutorily in a particular way, it can only be done that way. There is no scope for taking shelter under a discretionary power,” said a bench comprising Justice Arijit Pasayat and Justice LS Panta. The court rejected the plea that the tribunal can interfere with the order passed by SEBI. The court also turned down the plea that under section 15 T (4) of the Act, the tribunal is empowered to pass such orders on the appeal as it thinks fit, confirming, modifying or setting aside the order of SEBI.

SEBI had filed two appeals against order passed by the tribunal. In one case, Saikala Associates acted as a sub-broker at the National Stock Exchange with 2 NSE Members — MIS PCS Securities and M/S Zen Securities — without being registered as a sub-broker with SEBI between 2000 and May 2002. It had created the value of Rs 403.29 crore in breach of section 12(1) of the Securities and Exchange Board of India Act, 1992 (read with Rule 3 of the Securities and Exchange Board of India (Stock Brokers & Sub Brokers) Rules, 1992.)

In the second case Shilpa Stock, registered as a SEBI broker while executing trades on behalf of its client Kamlesh Shroff had dealt with Jairam Enterprises, an un-registered sub-broker. Again, it was in violation of SEBI rule. The tribunal had said the proved charges were not serious enough to warrant suspension of certificate of registration and had set aside the SEBI order. SEBI challenged this in the apex court. The regulator had said in terms of Regulation 25 of the SEBI regulations & circulars, (stock brokers and sub-brokers), which was applicable prior to the amendment with effect from November 2, 2003, it was provided that any contravention of any provisions of the Act, rules and regulations is to be dealt with in the manner provided in Regulations 26 to 32 of the Regulation prior to the amendment with effect from September 27, 2002.

 

The provisions of section 12(3) of the 1992 Act confer power on SEBI, by an order, to suspend or cancel a certificate of registration in such manner as may be determined by regulations, provided that no order under the said section will be made unless the person concerned has been given a reasonable opportunity of being heard, the appellant had said. It had further said as per Rule 3 of the Securities and Exchange Board of India (Stock Brokers & Sub Brokers) Rules, 1992, the existing brokers & sub-brokers were allowed to continue business pending registration but no new person commencing the business of the broker or sub-broker after August 20, 1992 could do the business pending registration and could commence only after being registered.

The court said, “In the instant case, the position of broker/sub-broker in case of violation is statutorily provided under Section 12 of the Act, which has to be read along with Rule 3 of the Rules. No power is conferred on the tribunal to travel beyond the areas covered by section 12 and Rule 3.”

Source: The Economic Times

The concerned citation of the case is S.E.B.I  Versus Saikala Associates Ltd. with CIVIL APPEAL NO. 4640 OF 2006 and the date of judgement is April 21, 2009. For complete judgement one can check SC website or else follow the below URL :-
 

http://judis.nic.in/supremecourt/helddis3.aspx

 
Thanks - CS Monika Bhardwaj of CS Mysore

SEBI IPEF Aid for Legal Proceedings are issued as guidelines 2009 to enable reimbursement of 75% of expenses incurred by Investor Associations

As you are aware that SEBI has notified Securities and Exchange Board of India (Investor Protection and Education Fund) Regulations, 2009 (SEBI IEPF notified to protect investors with 14 regulations, 2009, which also amends forfeiture)

Regulation 5(1)(d) of SEBI IPEF Regulations, 2009 states that “aiding investors’ associations recognized by SEBI to undertake legal proceedings in the interest of investors in securities that are listed or proposed to be listed”.  To enable the aid, SEBI has now provided Securities and Exchange Board of India (Aid for Legal Proceedings) Guidelines, 2009.

1. The aid is for the ‘Legal proceedings’ (as defined in Reg 2(1)(g) of SEBI IPEF Regulation which) MEANS any proceedings before a court or tribunal where 1000 (one thousand) or more investors are affected or likely to be affected by:- (i), (ii), (iii), (iv), (v) & (vi) such other market misconduct which in the opinion of the Board may be deemed appropriate;
BUT DOES NOT INCLUDE any proceeding where the Board is a party or where SEBI has initiated any enforcement action.

2. The legal aid covers the ‘Expenses’ as defined u/3(1)(a) of this Legal Aid Guidelines as ‘expenses’ means the expenses incurred with respect to any or all of the following in connection with a legal proceedings:-
i. court fees, process fees and other fees/charges payable in the courts as per law;
ii. the bills of solicitors, advocates and senior advocates for professional services rendered by them ;
iii. the clerkage and other miscellaneous expenses charged by the counsels, senior counsels and solicitors, as applicable.

3. Any Investors’ Association may make an application with details as given under Guideline 4(3) to SEBI seeking aid for undertaking legal proceedings.  Kindly note, the application and SEBI approval to be sought at every stage of the proceeding before every Court.

4. In case legal proceedings relates to mis-statement, misrepresentation or
omission in connection with the issue, sale or purchase of securities, the
application shall establish that: the investors relied upon such mis-statement, misrepresentation or omission and such statements caused monetary loss to the investors.

5. The aid for the legal proceedings shall be granted at the discretion of the
SEBI if it is prima facie satisfied that the aid is in the best interest of the investors.  SEBI shall issue a letter conveying grant of aid for a particular legal proceedings.

6. Payments: The aid for a particular legal proceedings shall be

• UPTO Rs. 20 lakh if it is before the Supreme Court of India and
• UPTO Rs. 10 lakh before any other forum.

7. The bills submitted shall be certified by the Auditor of the Investors’
Association and UPTO 75% of the expenses actually incurred shall be
reimbursed WITHIN 15 days of the receipt of claims.

8. The Investor Association shall submit a periodical report of the legal proceedings to SEBI and on conclusion of proceedings, a detailed report statement to be submitted with a self-certified statement on the utilization of aid by it.

[TakeoverCode]Creeping acquisition UPTO 5% in open market & Buy Back exemption amended

Dear All,

Consolidation of holdings under Takeover Regulations

As per extent of provisions of the SEBI Takeover Code the acquire can acquirer upto 55% of shareholding of a listed Company under 5% creeping acquisition limit.

Vide PR No.239/2008 dated 27^th October 2008 SEBI has decided that henceforth consolidation through creeping acquisition upto 5% be allowed to persons holding 55% and above but below 75%, subject to the condition that such acquisition can only be via open market purchases in the normal segment, and for the purpose, no consolidation via bulk/ block/ negotiated deal or through preferential allotment would be permitted.

Further, any increase in the holding of promoters pursuant to buy back, exemption under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations was required to be sought. It has now been decided to automatically exempt increase/ consolidation upto 5% per annum as a result of buy back by a company.

Necessary amendments to SEBI (Substantial Acquisition of Shares and Takeovers) Regulations are being carried out separately.

Conclusion:

Vide this amendment:

• In addition to creeping acquisition benefit upto 55%, the acquirer who is holding 55% or above not exceeding 75% can go for creeping acquisition upto 5% only through open market purchase AND no other route.
• When there is increase in shareholding of the promoter due to buy back of securities, such increase upto 5% per annum is permitted and no need to sought excemption from the SEBI.
  
  
  Thanks & Regards
  Alagar
  CSchennai
  Karvy - Merchant Banking
  Contact: 919790906827

Amendments To Takeover Code – Oversight Or Intended?
This is further to our most recent hotline "Creep up to 75% - Takeover Code Relaxed" discussing the proposed amendments relating to shareholding consolidation under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the "Takeover Code") as announced by the Securities and Exchange Board of India ("SEBI") in its press release No. 239/2008 dated October 27, 2008 ("Press Release").
Whilst SEBI has finally effected the amendments on this Monday, November 3, 2008 and amended the Takeover Code, the amendments, on several counts, do not correspond to the amendments as suggested by the Press Release.
This Hotline attempts to bring out and discuss the discrepancies between the Press Release and the amendments (as effected), possible reasons behind the discrepancies and finally the implications of the amendments in their current form.
The Discrepancies - Amendments v. Press Release
SEBI has amended Regulation 11(2) of the Takeover Code by inclusion of a proviso, which is summarized as under (the "Amendments") —
Any person who holds 55% or more but less than 75% may acquire additional shares or voting rights entitling him up to 5% voting rights in the target company ("
Target") if--
(a) the acquisition is through open market purchase in normal segment on the stock exchange but not through bulk deal /block deal/ negotiated deal/ preferential allotment; or (b) the increase in the shareholding or voting rights of the acquirer is pursuant to a buyback of shares by the Target; and
the post acquisition shareholding of the acquirer together with persons acting in concert with him does not increase beyond seventy five per cent (75%).

So, what to do, on

• Acquisition of Shares up to 5% - Any person holding 55% or more (but less than 75%) shares of the Target permitted to further increase his shareholding by not more than 5% in the Target without making a public announcement.
• Increase in shareholding due to buyback - Public announcement not required if the shareholding of any shareholder holding 55% or more is increased up to 5% due to buyback. No "per annum" time limit stipulated.
• 75% threshold - Acquirer restricted from increasing his shareholding more than 75% without making a public announcement.

The Amendments appear to be open ended and create ambiguities leaving significant scope for interpretation. Herein below we analyze and attempt to understand SEBI's rationale behind each of these amendments.
Acquisition of shares up to 5%
One of the most important and critical feature of the Amendments is to do away with the requirement of making a public announcement when a shareholder/acquirer holding 55% or more shares proposes to consolidate his shareholding by further acquisition of up to 5% shares of the Target. Amendments leave it open ended for anyone to interpret whether the 5% acquisition limit stipulated in Regulation 11(2) is applicable to each financial year, or is only a one time affair. In fact, on account of the above ambiguity, though a little far-fetched, it is possible to interpret Regulation 11(2) to imply that a person holding more than 55% shares can go on acquiring shares of the Target from the open market in less than 5% tranches multiple times in a year. However, in light of the spirit of the Takeover Code and more particularly Regulation 11(1), it appears likely that the SEBI intended to apply such 5% limit each financial year.

Having said that, there are views that SEBI probably wants to permit such creeping acquisitions beyond 55% only once in the lifetime of the Target, and any further acquisitions whether in the same year or in the subsequent years should mandate a public announcement. This view is not entirely without foundation as the Amendments were introduced as an aggressive measure to bolster the bearish stock market, and knowing that SEBI would like to retrogress to a more cautious approach position as and when the markets gain momentum. In fact, earlier this year the Finance Ministry was contemplating steps to make 25% minimum public shareholding a uniformity across the board for listed companies, but decided against it apprehending it might encourage further selling activity from promoters and disappoint an already distressed stock market.
Buyback triggering public announcement
Another aspect of the Amendments which has come under debate is the application of Regulation 11(2) even to non promoters due to buyback. Amendments mark a significant turning point as shareholders holding 55% or more shares no longer need to approach the takeover panel for seeking exemption from making public announcements for up to 5% increase in their shareholding due to buy back. Prior to the Amendments, shareholders approached the takeover panel under Regulation 4(2) of the Takeover Code to seek exemption from making a public announcement if they anticipated that increase in their shareholding will require a public announcement to be made.
Separately, there are views that the Amendments may be disadvantageous to promoters if their shareholding increases by more than 5% due to an open market buyback, as they will still have to make a public announcement even when they are prohibited from participating in such buybacks.
75% Threshold
The clarification in the Amendments restricting shareholding consolidation beyond 75% leaves a room for interpretation whether the 75% threshold will stand modified to 90% in case of companies which are required to have a minimum public shareholding of 10%. In fact, had the Amendments not stipulated the 75% limit, it would have been only natural to read the 75% threshold in conjunction with the earlier proviso to Regulation 11(2), which provides that the 75% threshold will stand modified to 90% in cases where the listing norms permit minimum public shareholding of 10%.

Conclusion
While it remains to be seen whether the discrepancies mentioned above were the result of an oversight by the SEBI or were actually intentional, SEBI should take immediate steps to allay the ambiguities highlighted above to help the acquirers and stakeholders interpret the Amendments in the manner in which they were intended to by the SEBI.
- Ruchir Sinha & Nishchal Joshipura

Download SEBI DIP Guidelines as on 24th February 2009 with Amendments, Update & its Understanding with respect to offer document, preferential, etc...

The SEBI (Disclosure & Investor Protection) Guidelines amended on 24th February 2009 and click here to download the amended full SEBI (DIP) Guidelines, 2009 @ http://www.sebi.gov.in/guide/dip2009.pdf

Major highlights by CS Adhithya of Cool CS:

1. Timelimit for bonus issue reduced to 15/60 days from the date of Board meeting [erstwhile 6 months]
2. Enhanced the period of validity of observation letter issued by SEBI to 12 months [erstwhile 3 months]
3. Floor price or price band can be announced after registration of RHP with RoC but 2 working days before issue opens
4. Enhanced the upfront amount payable on Preferntial allotment from 10 to 25%

The brief of the amendments are as under:

Opening of Public Issue

An issue shall open within 12 months from the date of issuance of the observation letter by SEBI, if any or within 3 months from the 31st day from the date of filing of the draft offer document with SEBI, if no observation letter is issued.

Requirement of filing updated offer document

File an updated offer document with SEBI, highlighting all changes made in the document and in case of 'significant changes' in the offer document, it shall be filed with SEBI atleast 1 month before filing final prospectus with RoC/SE;

Change in Timelines of Bonus Issue

Shall be completed WITHIN 60 days from the Date of Board Resolution, where-in bonus was announced subject to Shareholders approval OR WITHIN 15 days from the Date of Board Resolution authorising such issue. Once resolved, the board shall not have the option of changing the decision.

Option not to disclose the floor price or price band

Where the issuer has not disclosed floor price or price band in prospectus filed with RoC/SE, it shall be disclosed atleast 2 working days before opening of the bid in case of IPO and atleast 1 working day before the opening of the bid in case of FPO, by way of an announcement in all thenewspapers in which the pre-issue advertisement was released by the issuer or the merchant banker;

Justification for Price in some cases

Justification for price is required to be given in the Offer Document and further, if the Issuer has not disclosed floor price or price band in the prospectus and taken an option to disclose it before 2 working days (for IPO) or 1 working day (for FPO) before opening of an issue, then, announcement shall contain the relevant financial ratios, computed for both upper and lower end of the price band and the basis of issue price or prescribed statements to guide investors in RHP which are,

(a) a statement that the floor price or price band, as the case may be, shall be disclosed at least two working days (in case of an initial public offer) and at least one working day (in case of a further public offer) before the opening of the bid);

(b) a statement that the investors may be guided in the meantime by the secondary market prices (in case of a further public issue);

(c) names and editions of the newspapers where the announcement of the floor price or price band would be made;

(d) names of websites (with address), journals or other media in which the said announcement will be made.

Preferential Allotment of Warrants

For preferential allotment of warrants minimum 25% paid at the time of allotment upfront and if warrant is not exercised, then such 25% money is forfeited.

Lock-in Requirements under Preferential Issue

Shares issued to Promoters (UPTO 20% Post-Issue Capital)	Lock-in for 3 years
Total Post-Issue Capital UPTO 20%	Lock-in for 3 years
Shares issued as Preferential allotment to promoter or promoter group [other than above] or to others	Lock-in for 1 year

Note: Lock-in of convertible instruments (other than Warrants) shall be reduced to the extent of lock-in of such convertible instruments.

Requirements when listed less than 6 months & lock-in

If the Co is listed for less than 6 months, then for such issue (other than to QIB's upto 5) consider the highest of IPO price or Value per share as 391 to 394 Scheme or average weekly high & low closing prices of such period or 2 weeks preceeding relevant date and recompute the price after 6 months, the difference shall be paid by the allottees to the company, otherwise such securities shall continue lock-in till the amount is paid.

Impact of Relaxation under Regulations 29A of Takeover Code

Shareholder (to whom preferential allotment is made) should not have sold such shares during last 6 months (unless relaxed u/R 29A of SEBI Takeover Code).

Preferential Allotment should be completed WITHIN fifteen days from the passing of the resolution (unless relaxed u/R 29A of SEBI Takeover Code).

Copies of Certificate of Statutory Auditor of the Company (Pracitsing CA certificate is allowed only when relaxation u/R 29A of SEBI Takeover Code) certifying that such issue is in compliance with the requirements of the SEBI guidelines, has to be laid @ the General Meeting convened to get the approval for issue of shares.

In case of relaxations granted under Regulation 29A of SEBI Takeover Code, the requirements regarding pricing, lock-in, disclosures in explanatory statement and Certification shall not be applicable to preferential allotment of equity shares, fully convertible debenture and partly convertible debentures ONLY IF an adequate disclosure about the plan is given in the Explanatory Statement.

Exemption from Rule 19(2)(b)

There is a relaxation of the strict enforcement of requirements of rule 19(2)(b) [requirement of 25% of offer to public on initial listing] of the SCRR, 1957 where an unlisted company intends to list its shares issued to the shareholders of a listed company pursuant to a scheme of arrangement approved by a High Court, without making an initial public offer OR for proposal for listing of Equity shares with differential rights as to dividend, voting or otherwise, offered through rights or bonus issue OR Warrants issued along with Non Convertible Debentures through Qualified Institutions Placement by a listed issuer.

Click here to see the applicability of the amendments @ http://www.sebi.gov.in/circulars/2009/dip342009.pdf

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