Amendment in SEBI Listing Regulations

SEBI, with the intent of investor protection and enabling them to take better and well informed investment decisions, has vide its Circulars dated 25th May 2016 and 27th May 2016 brought in certain amendments to the LODR Regulations (primarily Regulations 33 & 52). These Regulations pertain to the requirements of submitting Financial Results of the Company. As per the extant provisions, alongwith the Audited results for the financial year, Form A/ Form B were needed to be submitted, depending upon there being any Auditors’ Qualifications or not.
Now, vide the above mentioned Circulars, it has been decided to streamline the process and do away with the requirement of filing these Forms. The listed Companies are now required to disseminate the cumulative impact of all the audit qualifications in a separate format, simultaneously, while submitting the annual audited financial results to the stock exchanges.
The provisions of the said Circulars are applicable for all the annual audited standalone / consolidated financial results submitted by the listed entities for the period ending on or after March 31, 2016. That is to say, even for the results for the FY 15-16-either already submitted or under the process of being submitted.
A brief gist of the said Circulars is as under:
  1. The requirements of filing Form A/ Form B along with the annual financial results has been dispensed with.
  2. From now on, instead of these Forms, in case of Audit Reports with modified opinions (i.e. Qualified Audit Reports), a Statement on Impact of Audit Qualifications is needed to be submitted.
  3. The management of the listed entity shall have the option to explain its views on the audit qualifications
  4. Where the impact of the audit qualification is not quantified by the auditor, the management shall make an estimate. In case the management is unable to make an estimate, it shall provide reasons for the same. In both the scenarios, the auditor shall review and give the comments.
  5. Further, the said Statement is also needed to be given in the Company’s Annual Reports.
  6. The said Statement of Impact shall be reviewed by the concerned Stock Exchange(s).
  7. Further, in case of audit reports with unmodified opinion(s), the listed entity shall furnish a declaration to that effect to the Stock Exchange(s) while publishing the annual audited financial results.
  8. Schedule VIII of the LODR Regulations has been deleted.
  9. These requirements are applicable for both listed equity shares and also listed NCDs/ NCRPSs.
  10. In case of non compliance with the requirements of this Circular, the Stock Exchange(s) may take such action, as they deem fit.
CP’s viewpoint
It’s surely an investor friendly move that will enable the investors to view and analyse the impact of any Auditors Qualifications. But the only concern from listed companys’ point of view is how to comply, if they have already submitted/ published the results; or even if yet to be submitted/ published, how to obtain quantification or impact assessment for the Qualifications, in a time gap of only 2 days for submission of results. In our opinion, the Regulators (Stock Exchanges and/ or SEBI) should provide some time extension to the Companies to comply with the said Circulars for the FY 15-16.

What's Your Business Worth ?

Ever Wondered what’s your Business Worth ? Our Valuation Team has prepared a crisp Video on How to Value a Company” for its broad understanding. Do let us know your feedback.

“Knowing what business is worth and what determines its value is prerequisite for intelligent decision making”. Corporate valuations form the basis of corporate finance activity including M&A, fund raising, Sale of businesses, Succession planning and also to meet regulatory and accounting requirements. The rapid globalization of the world economy has created both opportunities and challenges for organizations leading to uncertainty blowing across global markets and raising the importance of independent valuations all over the world. Justifying the value of businesses has grown more complex and challenging as its been accepted that valuation of closely held / infrequently traded listed shares is not an exact science and depends upon a number of factors like purpose, minority/ controlling interest, stage, financials, industry, management and promoters strengths etc.

Corporate Professionals Capital Pvt. Ltd. is a SEBI Registered (Cat-1) Merchant Banker and has a successful track record of providing a broad range of M&A and Transaction Advisory Services. Our Dedicated Team has more than 10 years of rich valuation experience. Our in-house research wing regularly identifies and prepares research articles on debated issues of business valuation, including how to apply the range of valuation techniques, including their appropriate application, advantages and disadvantages. We have created a niche in Valuation Services by executing more than 500 Corporate Valuations (uncoding tangibles & intangibles) across 15 Industries for clients of International Repute and delivering well-reasoned and defensive Valuation Reports.

We value businesses (both Indian and Global) and attribute value to Equity Shareholders, Compulsory Convertible Instruments (CCPS/CCD’s) and Debt/Optionally Convertible Instruments. We also help businesses in allocating acquisition value into different set of Assets including Intangibles.

Call our Valuation Team at + 91 7210114523; email at or visit our dedicated Valuation portal at

Key Highlights of Insolvency & Bankruptcy Code, 2016

Key highlights of SEBI Board Meeting on Thursday 20th May 2016

  1.  Offshore Derivative Instruments (ODIs)
    Following suitable amendments to the Regulations/circulars are proposed to be made vis-à-vis ODIs:
    1. Stricter Know your client (KYC) & Anti Money Laundering (AML):
      1. Indian KYC/AML norms will now be applicable to all ODI issuers.
      2. ODI Issuers shall be required to identify and verify the beneficial owners/ the person(s) who control the operations in the subscriber entities i.e. holding more than 25% in case of a company and 15% in case of partnership firms/ trusts/ unincorporated bodies.
    2. Prior permission for Transferability: ODI subscribers will have to seek prior permission of the original ODI issuer for further/onward issuance/transfer of ODIs.
    3. Reporting of complete transfer trail of ODIs: in monthly reports on ODIs, all the intermediate transfers during the month would also be required to be reported
    4. KYC Review:
      1. At the time of on-boarding and once every three years for low risk clients
      2. At the time of on-boarding and every year for all other clients
    5. Suspicious Transactions Report: ODI Issuers to file suspicious transaction (if any) reports with the Indian FIU.
    6. Periodic Operational Evaluation system to be put in place to review of its controls, systems and procedures.
  2. Dividend distribution policy for listed companies
    1. To enable the investors to take well informed investment decisions, It is decided that top 500 listed companies (by way of market capitalization) would be required to formulate and disclose in their Annual Report and websites their “Dividend Distribution Policy (DDP)”.
    2. DDP to include:
      1. Circumstances under which shareholders can or cannot expect dividend;
      2. Financial parameters to be considered while declaring dividends;
      3. Internal and external factors to be considered for dividend declaration;
      4. Policy as to how the retained earnings will be utilized.
      5. Provisions for varied classes of shares.
    3. When the company proposes to declare dividend on the basis of parameters other than what is mentioned in such policy or proposes to change its dividend distribution policy, the same along with the rationale shall be disclosed.
  3. Proposed Amendments in SEBI Infrastructure investment trust (InvIts)
    1. To allow InvIts to invest in up-to 2 level SPV;
    2. Mandatory sponsor holding to be reduced to 10% from existing 25%;
    3. Maximum number of sponsors to be allowed to be up-to 5 from existing 3;
    4. Operational requirement to be aligned with provisions of Companies Act 2013 etc.
      Consultation paper will be placed on SEBI website to seek public comments on aforesaid proposed amendments.
  4. Guidance Note on Settlement & Compounding Regulations
    1. As per existing provisions of SEBI Settlement regulations 5(2)(b), serious FUTP matters having market wide impact and having caused losses to the investors were not settled/consented.
    2. Due to non-clarity on interpretation of aforesaid provision, a Guidance note clarifying that “only those cases which in the opinion of the Board have a bearing on the securities market as whole and not just the listed security and its investors may be considered to have market wide impact and are to be taken up for Enforcement action only”
    3. The aforesaid clarification as per guidance note is proposed to be now incorporated in the Regulations
  5. Amendments to the SEBI Act, 1992, SC(R)Act, 1956 & Depositories Act, 1996 vis-à-vis Roofit Industries Judgement
    1. Latest judgment of Supreme Court of India in the matter of Roofit Industries has created difficulties before SEBI Adjudicating Officers (AO) in passing orders for monetary penalty. As per the judgment, AOs during the period from 2002 to 2014 does not discretionary powers on deciding the quantum of monetary penalties.
    2. It is decided by the Board that a proposal to be sent to Central Government seeking amendment in law to clarify the powers of Adjudicating officer in imposing monetary penalties for cases from the period 2002 to 2014

Why to go for ESOPs?

Fasten up your gridles..

Regularizing Pro-Trading for Commodity Brokers

The merger of Forward market commission (FMC) with Security Exchange Board of India (SEBI) has enlarged the scope of market regulation for SEBI by bringing commodity derivative market into its domain. Since merger of two regulators in September 2015 in an attempt to align commodity market with equity market, SEBI has been taking several initiatives. In line with this objective, of late SEBI has issued yet another circular dated 25th April 2016 for mandating Commodity Derivative Brokers to disclose their proprietary trading and details of pro-account trading terminals to its clients.
Discloser of proprietary trading
For fulfilling the purpose of increased transparency in dealings between the commodity broker and their clients, the provision of SEBI circular (Dated 19th Nov. 2003) are extended to commodity derivative markets. The provisions of the circular requires that every broker shall disclose to his client whether he does proprietary trading as well or not. The commodity brokers are now required to disclose the above information within one month from date of this circular to its existing client and same shall be disclosed upfront in taking up any new assignments from new clients. In case of commodity brokers who was earlier not involved in the proprietary trading, but choose to do it later, then he shall disclose such intentions to his clients. The commodity derivative exchange are further required to amend their bye- laws in order to incorporate requirements of these disclosers mandated by circulars.
Discloser of Pro-account trading terminals
In order to monitor and to further regulate the pro-account trading the provision of SEBI circular dated (27TH AUG. 2003) are extended to commodity derivative trading. According to the requirements of the above dated SEBI circular the facility of pro-account trading shall be available through trading terminal at identified location only and the trading terminals located at a place other than identified location shall be utilized only for placing orders on behalf of clients. If in case the broker requires the pro-account facility to be extended to it from multiple locations then broker shall submit an undertaking to exchange and the exchange shall after proper due diligence may extend such facility. The same provisions are now mandated for Commodity derivative exchanges as well and they are required to amend their bye-laws in conformity to above provision.
In broad sense it could be viewed as an appreciable move by SEBI to regulate an important player of commodity derivative market and to lower the possibility of fraud in the market.

Single Brand Retail through e-commerce

Vide Press Note 12 of 2015 series, issued on 24th November, 2015, DIPP allowed only those single brand retail trading entities to undertake retail trading through e-commerce, which operate through brick and mortar stores in India. The object of the press note was to bring more investments and also the high quality goods in India with the aim to growth and technological development of India. However the press note fails to define the target public for sale of the such goods through e-commerce and also defining region and coverage of the e-commerce sale considering the opening of the brick and mortar store, which leads to the interpretation of opening of one brick and mortar store in India and engaging into B2C e-commerce in the entire country thereby defeating the very purpose of the press note for brining in investments into India since the e-commerce model does not involve big investments. Thus as a result DIPP started receiving number of queries with respect to such a huge relaxation of doing e-commerce business in India through single brand retail. DIPP realizing the error in the earlier press note allowing the e-commerce business has now came up with Press Note No. 3 (2016 Series); dated 29th March, 2016 and clear guidelines on FDI in B2C e-commerce sector with respect to Marketplace e-commerce model and Inventory based e-commerce model, by which it prohibited the FDI into inventory based e-commerce B2C model. The same have been detailed herein below:
FDI in marketplace model of e-commerce
The Government allowed 100% FDI in B2C e-commerce marketplace model, which has been defined to mean providing of an IT platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller. For undertaking FDI in e-commerce marketplace, the following conditions shall be satisfied:
  • An e-commerce entity will not be permitted to sell more than 25% of the sales affected through its marketplace from one vendor or their group companies.
  • Guidelines on cash and carry wholesale trade under the FDI Policy (as discussed above), shall apply mutatis mutandis to B2B e-commerce also.
  • Contact details of the sellers are to be displayed online by the e-commerce entities.
  • E-commerce entity providing a marketplace will not exercise ownership over the goods to be sold.
  • An e-commerce marketplace entity will be permitted to enter into transactions with sellers registered on its platform on B2B basis.
  • Support services to the sellers, like warehousing, logistics, call center etc., may also be provided by the e-commerce entities.
  • The warranty/guarantee of products or services sold online will be borne by the sellers, not the e-commerce entity. In addition, the seller alone shall be responsible for delivery of goods and satisfaction of customer.
  • Payments for sale shall be facilitated by the e-commerce entity in conformity with the RBI guidelines.
  • The price of goods or services shall not be, directly or indirectly, influenced by the e-commerce entities providing marketplace.
    If any of the above conditions are not satisfied then approval of the FIPB shall be obtained.
FDI in inventory based model of e-commerce
It has been specifically provided that FDI is not permitted in inventory based model of e-commerce, which has been defined to mean an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to consumers directly. Thus, FDI in B2C e-commerce has been specifically restricted in case goods are owned by the e-commerce entity.
However, on review of the above there still a scope of Inventory based e-commerce B2C model to the extent of 25% of the goods imported from outside India under single brand retail by sale through whole sale trade model to a group company in India, wherein not more than 49% investment is held in the importing company, which again keeps the investee company out of the purview of the downstream investment and thus not falling under the prohibition of B2C e-commerce; 25% through Platform based e-commerce B2C model through sale from any of the group company and the balance of 50% e-commerce B2C sale can be done through the already existing franchise model.

Fema Law Newswre : Infrastructure Sector companies and certain NBFCs allowed to raise ECB (External Commercial Borrowings) for shorter duration

Infrastructure Sector companies and certain NBFCs allowed to raise ECB (External Commercial Borrowings) for shorter duration
The Reserve Bank of India (RBI) with a view of development of Infrastructure of India has expanded the scope of funding through ECB, particularly for infrastructure sector, vide issuance of circular: A.P. (DIR Series) Circular No.56; dated 30th March, 2016.
Now, infrastructure sector companies, non-banking finance companies (NBFCs), infrastructure finance companies (NBFC-IFCs), asset finance companies (NBFC-AFCs), holding companies and Core Investment Companies (CICs) will also be eligible to raise ECB under Track I of the ECB framework issued by the RBI in November, 2015.
  • Earlier position:
In the said ECB framework (released in November, 2015), RBI had detailed three tracks through which Indian companies could borrow from offshore market. Track-I allowed companies to borrow foreign currency loans with a minimum maturity of three-five years, Track-II allowed long-term borrowings of minimum ten year maturity and Track-III enabled rupee-denominated ECB to be issued to offshore investors with a minimum maturity of three-five years.
Those allowed to borrow under Track-I were manufacturing companies, software companies, shipping and airlines, special economic zones, Small Industries Development Bank of India and EXIM Bank. Infrastructure companies, CICs, real estate investment trusts and infrastructure investment trusts were allowed to borrow under Track-II and Track-III which are basically the borrowings for longer duration while NBFCs were allowed only to borrow under Track-III.
Thus, until now, infrastructure companies could raise only long term external borrowings of more than ten years and all NBFCs were allowed only to borrow rupee denominated ECB with a minimum maturity of three-five years.
  • Present position:
RBI made adjustments to the afore-mentioned categories and permitted infrastructure companies and NBFCs to borrow for a minimum maturity of three-five years, subject to 100% hedging. Thus, the relaxed provisions, comes with the stipulation that such borrowings must be fully hedged, which may make it expensive for companies to raise funds overseas. It has been further been provided that:
  • The individual borrowing limit of $750 million prescribed for infrastructure companies would continue to apply;
  • The cost ceiling for five-year ECBs is retained at 450 basis points1 above the six-month LIBOR2 while that of a 10-year loan is retained at 500 bps above Libor;
  • While infrastructure companies can use the ECB proceeds raised under Track I for the end uses permitted for this Track, NBFCs-IFCs and NBFCs-AFCs will be allowed to raise ECB under Track I only for financing infrastructure;
  • Holding companies and CICs can use foreign loan proceeds only for on-lending to infrastructure special purpose vehicles;
  • The companies added under Track I should have a Board approved risk management policy which is to determine and manage for risks involved in shorter duration borrowings;
  • The designated AD Category-I bank shall verify that 100 % hedging requirement is complied with during the currency of ECB and report the position to RBI through ECB 2 returns.
In addition, the RBI has clarified the following concerns qua the ECB framework released on 30th November, 2015 vis-à-vis the revised framework:
  1. The designated AD Category-I banks may allow refinancing of ECBs raised under the previous ECB framework, provided
    1. the refinancing is at lower all-in-cost;
    2. the borrower is eligible to raise ECB under the extant ECB framework; and
    3. The residual maturity is not reduced (i.e. it is either maintained or elongated);
  2. ECB framework is not applicable in respect of the investment in Non-convertible Debentures (NCDs) in India made by Registered Foreign Portfolio Investors (RFPIs), since such investments are governed through the schedule 5 of the FDI Regulations;
  3. Minimum average maturity of Foreign Currency Convertible Bonds (FCCBs)/ Foreign Currency Exchangeable Bonds (FCEBs) is five years irrespective of the amount of borrowing. Further, the call and put option for FCCBs shall not be exercisable prior to five years;
  4. Only those NBFCs which are coming under the regulatory purview of the RBI are permitted to raise ECB i.e the entities holding valid certificate of registration from RBI for carrying on the NBFC business. Further, under Track III, the NBFCs may raise ECBs for on-lending for any activities including infrastructure as permitted by the concerned regulatory department of RBI;
  5. The provisions regarding delegation of powers to designated AD Category-I banks is not applicable to FCCBs/FCEBs;
  6. In the forms of ECB, the term “Bank loans” shall be read as “loans” as foreign equity holders / institutions other than banks, also provide ECB as recognized lenders.

[1] One basis point is one-hundredth of a percentage point
[2] LIBOR i.e. London interbank offered rate, is a benchmark rate that world’s leading banks charge each other for short-term loans.

Incentivize your Team with ESOPs