The objective of this newsletter is to contribute curated informational content on industry or niche topics on latest developments in the regulatory framework of India. This monthly newsletter is a seamless synopsis of relevant legal developments which enriches corporates including listed companies in India in their legal area. Our divergent newsletter is a summation of the most recent legal updates by the Ministry of Corporate Affairs and updates from regulators like the Reserve Bank of India (RBI) and the Securities Exchange Board of India (SEBI).

This September newsletter covers categories of relevant updates notified by the Ministry of Corporate Affairs, the Indian securities market regulator (i.e., SEBI) and India's central bank and regulatory body responsible for regulation of the Indian banking system (i.e., RBI) in the month of September. The notification of the RBI and SEBI on (i) Release of Movable / Immovable Property Documents on Repayment/ Settlement of Personal Loans; and (ii) Framework introduced to permit unitholders of Infrastructure Investment Trusts (InvITs) and (ReITs) to exercise board nomination rights are some of the important updates covered in this newsletter.

MCA

MCA extends virtual AGM and EGM facility until September 2024.

September 25th, 2023: The Ministry of Corporate Affairs (Ministry) by its General Circular No. 09/2023 dated September 25, 2023and in continuation of its General circular No. 20/ 2020 dated 05.05.2020, General Circular No. 02/ 2022 dated 05.05.2022 and General Circular No. 10/ 2022 dated 28.12.2022, has allowed companies whose Annual General Meetings (AGMs) are due in the Year 2023 or 2024, to conduct such AGMs through Video Conference (VC) or Other Audio Visual Means (OAVM) on or before September.

The Ministry has further clarified that this is not a statutory extension of time for conducting companies’ AGM as per the Companies Act, 2013, and that companies who have defaulted in adhering to the said statutory timelines, shall be liable for legal actions.

Further, the Ministry has also notified that companies can also conduct their Extra-Ordinary General Meetings (EGMs) through VC or OAVM or transact items through postal ballot up to 30.09.24, as per the relevant circulars issued in this regard. 

Link here.

RBI

RBI issues Directions on Responsible Lending Conduct – Release of Movable / Immovable Property Documents on Repayment/ Settlement of Personal Loans.

September 13, 2023: The Reserve Bank of India (RBI) observed the issues being faced by the borrowers (namely customer grievances and disputes) on account of divergent practices being followed by Regulated Entities (REs), with regards to the release of movable/ immovable property documents (“Documents”) on full repayment of personal loans by the borrowers to the concerned REs and closure of the respective loan account. To address the said issue and to further promote responsible lending conduct among the REs, RBI issued the Directions on “Responsible Lending Conduct – Release of Movable / Immovable Property Documents on Repayment/ Settlement of Personal Loans” (“RLC Directions”), which are required to be followed by all REs for all cases where the release of Documents falls due on or after December 1, 2023.

The RLC Directions address inter alia, (a) the release of Documents by REs within 30 (thirty) days of receiving full repayment of personal loans from the borrower and closure of the loan account; (b) the timeline and place of return of original movable / immovable property documents will be mentioned in the loan sanction letters issued on or after December 1, 2023 (c) compensation by REs to the borrowers for delay (beyond 30 (thirty) days) in release of Documents (at the rate of ₹5,000/- for each day of delay); (d) REs to have a procedure for return of original Documents to the legal heirs of sole/joint borrowers in case of their contingent demise and display of such procedure on the RE’s website.

To access the RLC Directions, please click here.

RBI Issues Master Direction on RBI (Prudential Regulations on Basel III Capital Framework, Exposure Norms, Significant Investments, Classification, Valuation and Operation of Investment Portfolio Norms and Resource Raising Norms for All India Financial Institutions).

September 21, 2023: The Reserve Bank of India (“RBI”) has issued a Master Direction - RBI (Prudential Regulations on Basel III Capital Framework, Exposure Norms, Significant Investments, Classification, Valuation and Operation of Investment Portfolio Norms and Resource Raising Norms for All India Financial Institutions) (“Basel III Master Directions”) to ensure that All India Financial Institutions (“AIFIs”) regulated by RBI adhere to prudential regulations that align with the Basel III Capital Framework, Exposure Norms, Significant Investments, Classification, Valuation and Operation of Investment Portfolio Norms and Resource Raising Norms. These Basel III Master Directions are applicable to the five AIFIs i.e. the Export-Import Bank of India (EXIM Bank), the National Bank for Agriculture and Rural Development (NABARD), the National Bank for Financing Infrastructure and Development (NaBFID), the National Housing Bank (NHB) and the Small Industries Development Bank of India (SIDBI) and the same shall come into effect from April 1, 2024.

The Basel III Master Directions can be accessed here.

RBI Issues Draft Master Direction on Treatment of Wilful Defaulters and Large Defaulters

September 21, 2023: RBI has introduced a draft Master Direction on Treatment of Wilful Defaulters and Large Defaulters (“Draft Master Directions for Wilful Defaulters”). These Draft Master Directions for Wilful Defaulters has been introduced by RBI based on the review and considerations of various judgments/ orders from the Hon’ble Supreme Court and Hon’ble High Courts, as well as representations/ suggestions received from banks and other stakeholders to make the Master Circular on Wilful Defaulters (last updated on January 7, 2015). The primary objective of these Draft Master Directions for Wilful Defaulters is to provide for a non-discriminatory and transparent procedure, for classifying a borrower as a wilful defaulter by the lenders. The directions also aim to put in place a system to disseminate credit information about wilful defaulters for cautioning lenders to ensure that further institutional finance is not made available to them.

The Draft Master Directions for Wilful Defaulters expands the scope for regulated entities which can classify borrowers as willful defaulters, broadens the definition of willful default, refines the identification process and mandates a review and finalization on willful default aspects within six months of an account being classified as a non-performing asset. It also addresses the treatment of willful default loans sold to Assets Reconstruction Companies and their status under the Insolvency and Bankruptcy Code, 2016.

The Draft Master Directions for Wilful Defaulters can be accessed here. 

SEBI

New format of Abridged Prospectus introduced for public issues of Non-Convertible Debt Securities and/or Non-convertible Redeemable Preference Shares.

September 4, 2023: SEBI has issued a new format of Abridged Prospectus ("AP”) for public issues of non-convertible debt securities and/or non-convertible redeemable preference shares to provide greater clarity and consistency in the disclosures and provide additional but critical information. This circular has become applicable for all public issues opening on or after October 1, 2023 and stipulates that:

• Instructions to investors for completing the application form are to be disclosed by the issuer, merchant bankers, syndicate members involved in the public issue, on their websites during the period when a public issue is open and a link for downloading the instructions shall be provided in issue advertisement for the public issue.
• A Quick Response (QR) code will be included on the last page of AP which would lead to Prospectus. The Issuer/ Merchant Bankers shall ensure that disclosures in the AP are neither misleading nor contain any misstatement, and any qualitative statement is substantiated with quantitative factors. A qualitative statement that cannot be substantiated with quantitative factors shall not be included in the AP.

Link here.

Mechanism introduced for sharing of information by Credit Rating Agencies (“CRAs”) to Debenture Trustees (“DTs”).

September 4, 2023: SEBI (Credit Rating Agencies) Regulations, 1999 require sharing of certain information from CRAs to DTs which are generally of large quantum and are to be submitted daily as well as under short timelines. SEBI vide circular dated September 4, 2023 (“Circular”), has introduced a mechanism for sharing of information by CRAs to DTs, whereby an excel template has been specified for use by the CRAs. Submissions are required to be sent by CRAs to the DTs on the same day as the day of rating revisions. The Circular has become effective from October 1, 2023, and CRAs are required to report on their compliance with the Circular to SEBI within one quarter.

Link here.

Framework introduced to permit unitholders of Infrastructure Investment Trusts (InvITs) to exercise board nomination rights.

September 11, 2023: Regulation 4(2)(h) of SEBI (Infrastructure Investment Trusts) Regulations, 2014 (“InvIT Regulations”) provides that unitholder(s) holding not less than ten percent of the total outstanding units of the InvIT, either individually or collectively, shall be entitled to nominate one director on the board of directors of the Investment Manager. In view of the same, SEBI has introduced a framework for eligible unitholder(s) to exercise board nomination rights. This circular came into effect immediately upon issue and requires the Investment Managers of an InvIT to ensure, within ten days from the end of each calendar month, that the eligible unitholder(s) who have exercised the board nomination right, continue to have/hold the required number of units of InvIT and make a report of the same.

Link here.

Framework introduced to permit unitholders of Real Estate Investment Trusts (REITs) to exercise board nomination rights.

September 11, 2023: Regulation 4(2)(g) of SEBI (Real Estate Investment Trusts) Regulations, 2014 (“REIT Regulations”) provides that unitholder(s) holding not less than ten percent of the total outstanding units of the REIT, either individually or collectively, shall be entitled to nominate one director on the board of directors of the Manager. In view of the same, SEBI has introduced the framework to exercise board nomination rights by the eligible unitholder(s). This circular came into effect immediately upon issue and requires the Managers of a REIT to ensure, within ten days from the end of each calendar month, that the Eligible Unitholder(s) who have exercised the board nomination right, continue to have/hold the required number of units of REIT and make a report of the same.

Link here.

Revised format issued for regulatory reporting by Alternative Investment Funds (“AIFs”).

September 15, 2023: In terms of Regulation 28 of the SEBI (Alternative Investment Fund) Regulations, 2012 (“AIF Regulations”) read with Clause 15.1 of the SEBI Master Circular for AIFs dated July 31, 2023, an AIF is required to submit quarterly reports specifying the activities carried out by the AIF in the format prescribed by the SEBI. 

In order to enable AIF industry to have uniform compliance standards, and ease compliance reporting and for regulatory and development purposes, SEBI has issued a revised format of regulatory reporting by AIFs, which specifies that quarterly reports are to be submitted as per the following timelines: 

This revised reporting format is required to have been hosted by AIF associations on their website within 2 working days of issuance of the Circular. The AIF associations are also required to assist all AIFs in understanding the reporting requirements and in clarifying or resolving any issues which may arise.

Link here.

SEBI Board Meeting held on September 21, 2023.

In this meeting, SEBI approved certain businesses relating to the various trends in the securities markets including technology trends and SEBI’s approach to proactively planning for the way forward. A summary of the key trends are as follows:

A. Flexibility in the framework for Large Corporates (“LCs”) for meeting incremental financing needs through issuance of debt securities.

This was operationalized by the following amendments to the existing framework:

(i) a higher monetary threshold specified for defining LCs thus reducing the number of entities qualifying as LCs; 

(ii) removal of penalty on LCs unable to raise a certain percentage of incremental borrowing from the debt market; and

(iii) introduction of incentives and moderated disincentives

In order to facilitate ease of compliance and ease of doing business, SEBI has also decided to retain the requirement to ensure compliance with the framework over a contiguous block of 3 years. Further, the requirement for LCs to file a statement identifying itself as an LC and demonstrating compliance with the framework has been dispensed with.

B. Streamlining the Framework for credit of unclaimed amounts of investors in listed entities other than companies, REITS and InvITs to the Investor Protection and Education Fund (IPEF) and process of refund from the IPEF.

In order to streamline the credit of unclaimed amounts of investors and provide for a claim of such amounts, SEBI has approved amendments to the Investor Protection and Education Fund (IPEF) Regulations, LODR Regulations, REIT Regulations and InvIT Regulations with the objective of:

• prescribing a uniform process of claim for such amounts in a streamlined manner for the ease and convenience of investors. Investors may approach the debt listed entity/ REIT/ InvIT to claim their unclaimed amounts, thereby ensuring minimal disruptions in the claim process for investors; and
• creating a regulatory framework for segregation of unclaimed amounts of investors in the IPEF, to facilitate utilization and processing of such amounts in the manner as may be prescribed.

C. Extending the timeline for compliance with enhanced qualification and experience requirements for Investment Advisers.

SEBI approved the extension of timeline for compliance with enhanced qualification and experience requirements for Investment Advisers till September 30, 2025, which was required to be complied by the Investment Advisers up to September 30, 2023, pursuant to SEBI (Investment Advisers) (Amendment) Regulations, 2020.

Link here.

Revised framework introduced for handling complaints received via SCORES platform.

September 21, 2023: SEBI has introduced a revised framework for handling of complaints received via SCORES platform to strengthen the existing investor grievance handling mechanism and also linking the SCORES platform with the Online Dispute Resolution platform, the key features of which are as follows:

• Notwithstanding anything contained in any circular issued by SEBI in this regard, a listed company, registered intermediary or market infrastructure institution (“Entities”), shall submit the Action Taken Report (“ATR”) on SCORES withing 21 calendar days from receipt of complaint.
• The circular shall come into effect from December 04, 2023, on which date the previous Master Circular on redressal of grievances (SEBI/HO/OIAE/IGRD/P/CIR/2022/0150 dated November 7, 2022) shall stand rescinded. However, a grandfathering of actions has been provided for in respect of actions taken under the previous Master Circular on redressal of grievances.

Link here.

Contributors to the newsletter:

Nusrat Hassan, Managing Partner

Sayantani Dutta, Partner

Ambuj Sonal, Partner

Tanvi Pande, Principal Associate

Abhinav Anand, Senior Associate

Meghna Punjabi, Senior Associate

Tamilarasi A Mudaliar, Senior Associate

Dewang Khandelwal, Associate