The Securities and Exchange Board of India (SEBI) had its Board meeting
on Friday, 12th March 2016. The gist of key decisions taken by SEBI and
its impact are summarized below:-
1.
Restrictions
on willful defaulters –
a. If
any Company or its promoters or directors is categorized as a willful
defaulter, then such Company cannot make
a public issue of equity securities / debt securities / non-convertible
redeemable preference shares.
b. Any
Company or its promoters or directors categorized as a willful defaulter or its
promoter or its director is categorized as willful defaulter may not be allowed
to take control over other listed company. However, if a listed company or its
promoter or its director is categorized as a willful defaulter, and there is a
take-over offer in respect of the listed company, they may be allowed to make competing
offer for the said listed company in accordance with SEBI (SAST) Regulations,
2011
c. The
criteria for determining a ‘fit and proper person’ in SEBI Regulations will be
amended to include that no fresh registration shall be granted to any entity if
the entity or its promoters or its directors or key managerial personnel, as
defined under SEBI (ICDR) Regulations, 2009, are included in the list of willful
defaulters.
2.
Review of manner of dealing with Audit
Reports containing Qualifications
SEBI has revised its
mechanism to review the audit qualifications in audit reports of listed
companies, which was incorporated in the SEBI (Listing and Other Disclosure
Requirements) Regulations, 2015, and the revised mechanism will be applicable
from the financial year ending March 2016, as well as for earlier cases.
Accordingly, SEBI has also
revised the manner of disclosure of audit qualifications in the Audit report
which shall be as follows:
a. The
listed entities shall be required to disclose the cumulative impact of all the
audit qualifications on relevant financial items in a separate form called
"Statement on Impact of Audit Qualifications" instead of present Form
B. Such disclosure would be in a tabular form along with the Annual Audited
Financial results filed in terms of Listing Regulations.
b. In
cases where there are no audit qualifications, the existing requirement of
filing Form A signed by top officials / directors of the company and auditors
shall not be necessary.
c. The
management shall have the right to give its views on the audit qualifications
in the new form.
d. The
existing requirement of adjustment in the books of accounts of the subsequent
year shall not be necessary.
3.
Brightline Tests for Acquisition of
‘Control’ under SEBI Takeover Regulations
Under SEBI (SAST) Regulations, 2011, any acquisition of ‘control’ shall
be subject to a public announcement for Open offer. However, assessment of
‘control’ as defined under the SEBI (SAST) Regulations, 2011 requires
consideration of facts and circumstances of each case. This results in a
multitude of opinions. Further, multiple regulators apply the test of control
from different perspectives and may arrive at differing results which may lead
to ambiguity.
Hence in view of the need to identify bright lines for ‘Control’ as
defined under the SEBI (SAST) Regulations, 2011, the following proposals may be
considered:
a.
Framework
for protective rights - An illustrative list of protective rights which
would not amount to acquisition of control may be issued. Grant of such protective
rights to an investor may be subject to obtaining the public shareholders’
approval (majority of minority).
b.
Adopting
a numerical threshold - Considering the international practices and the
current regulatory environment in India, the definition of control may be
amended such that control is defined as
o
the right or entitlement to exercise at least
25% of voting rights of a company irrespective of whether such holding gives de
facto control and/or
o
the right to appoint majority of the non-independent
directors of a company.
c.
Or,
any other option as may be decided after consultation.
The discussion paper inviting comments will
be placed on SEBI website for seeking public comments.
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