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LEGAL BRIEFS – Insights and Updates for Corporate Governance #003

CS. Sandeep JACS, B. Com

SEBI Widens the Spectrum of 'Related Parties': Analyzing Changes in SEBI (LODR) Norms

SEBI has broadened the spectrum of related parties in SEBI (Listing Obligations and Disclosure Requirements) regulations 2015 vide its notification SEBI/LAD-NRO/GN/2021/55 also called as Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Sixth Amendment) Regulations, 2021.

-SEBI has made changes to the regulations governing Related Party Transactions (RPT) to strengthen regulatory norms and address corporate governance issues.

-The amendments were recommended by a Working Group constituted by SEBI in November 2019, which included members from the Primary Market Advisory Committee.

-The amendments were implemented in two phases, starting from April 1, 2022, and the remaining changes will take effect from April 1.

-The focus is on the amendments applicable from April 1, 2023.


-The definition of Related Party now includes parties covered under section 2(76) of the Companies Act 2013 or applicable accounting standards.


-To ensure appropriate disclosure, a deeming fiction has been introduced, bringing promoters into the scope of Related Party.


-As per the amended regulations, the following parties will be considered related parties:


(i) Persons or entities forming part of the promoter or promoter group of the listed company.


(ii) Persons or entities holding equity shares:


a. 20% or more, or


b. 10% or more, starting from April 1, 2023, either directly or through beneficiaries mentioned under section 89 of the Companies Act 2013 during the preceding financial year.


-The amendments also include changes in definitions, thresholds of material transactions, enhanced roles for the Audit Committee, shareholders’ approval on RPT, and stock exchange disclosures.


– The aim of these changes is to strengthen regulations, address corporate governance concerns, and promote transparency and disclosure in Related Party Transactions.

SEBI justified in directing violators of PIT regulations to disgorge unlawful gain, 6 months market ban and penalties

Ms. Pallavi Navinchandra Mehta v. Securities & Exchange Board India – [2023]

The Board of Directors of the company ‘ADF’ approved the buyback of equity shares for an amount of Rs. 18 crores.

-The announcement of the buyback was made on the stock exchange in accordance with the LODR Regulations.

-An investigation by SEBI revealed that the information about the buyback was known only to insiders and not publicly available.

-This information was Unpublished Price Sensitive Information (UPSI) and had a significant impact on the company’s stock price.

-SEBI imposed a penalty of Rs. 40 lakhs on the appellants for insider trading.
-The Securities Appellate Tribunal (SAT) noted that one of the appellants, who was a promoter and executive director of the company, possessed the UPSI.

-The appellant communicated the UPSI to connected entities, who then traded in the company’s shares based on the UPSI.

-The SAT concluded that the trades executed by the appellants violated SEBI’s regulations on insider trading.

-The SAT upheld SEBI’s order, which included disgorgement of unlawful gains, a 6- month ban from accessing the securities market, and a penalty of Rs. 40 lakhs on the appellants.

Payment for Mutual Funds on behalf of minor to be made via Minor/Parent/Legal guardian’s bank account: SEBI

Circular no. SEBI/HO/IMD/POD-II/CIR/P/2023/0069; Dated: 12.05.2023

AMCs must make necessary changes to facilitate mutual fund transactions for minors through a guardian.

-Payment for mutual fund investments can be made from the minor’s bank account, the parent or legal guardian’s account, or a joint account of the minor with the parent or legal guardian.

-For existing mutual fund folios, AMCs will require a Change of Pay-out Bank mandate before processing redemption requests.

-Regardless of the payment source, all redemption proceeds will be credited only to the verified bank account of the minor.

-The verified bank account should be held with the parent or legal guardian of the minor.

-KYC formalities must be completed for the minor’s bank account.

RBI directs banks/financial institutions to ensure complete transition away from LIBOR w.e.f 01.07.2023

Circular no. RBI/2023-24/30 CO.FMRD.DIRD.01/14.02.001/2023-24; Dated: 12.05.2023

-From July 1, 2023, banks and financial institutions (FIs) in India must completely transition away from the London Interbank Offered Rate (LIBOR).
-The transition aims to mitigate operational risks and ensure a smooth shift in global financial markets.
-Banks/FIs should not enter into new transactions or price them using the US$ LIBOR or the Mumbai Interbank Forward Outright Rate (MIFOR).
-Since December 31, 2021, banks in India have been encouraged to use widely accepted alternative reference rates (ARR) for their transactions.
-Banks/FIs must ensure that fallback provisions are included in all remaining legacy financial contracts that refer to US$ LIBOR.
-The Reserve Bank will monitor the efforts of banks/FIs to ensure a seamless transition from LIBOR.
-After June 30, 2023, Financial Benchmarks India Pvt. Ltd. will stop publishing MIFOR. -The Financial Conduct Authority of the UK decided to withdraw LIBOR settings in 2021 due to widespread allegations of malpractice.

Govt. establishes C-PACE to provide hasslefree filing, timely and process-bound striking off companies from MCA Registry

-The Ministry of Corporate Affairs (MCA) in India established the Centre for Processing Accelerated Corporate Exit (C-PACE) through a notification on March 17, 2023.

-C-PACE aims to facilitate the quick and transparent exit of companies by centralizing the striking-off process of companies under Section 396 of the Companies Act, 2013.

-The establishment of C-PACE will help reduce the burden on the MCA Registry and ensure a clean registry, while providing more meaningful data to stakeholders.

-C-PACE is part of the MCA’s efforts to improve the ease of doing business and ease of exit for companies.

-The Office of C-PACE was inaugurated on May 1, 2023, by Shri R.K. Dalmia, Director of Inspection & Investigation at the MCA.

-Shri Harihara Sahoo, ICLS, has been appointed as the first Registrar of the C-PACE office.

-The C-PACE office will operate under the supervision and administration of the Director General of Corporate Affairs (DGCoA) in New Delhi.

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