Informist, Friday, May 14, 2021

By Rajesh Gajra

The recent consultation paper of the Securities and Exchange Board of India lays out a substantial change for listed companies by proposing to replace the promoter and promoter group concept with controlling shareholders and persons acting in concert.

SEBI and the primary market advisory committee have been deliberating on this for the last couple of years. But this time the market regulator appears to be serious in effecting changes in its regulations.

While the SEBI consultation paper has argued extensively why the promoter group concept is no longer meaningful, it has not elaborated at length on the new concept of controlling shareholders and persons acting in concert. The paper floats the new idea but does not discuss it adequately.

The first and foremost thing that SEBI needs to do is to detail what is meant by 'control' or 'controlling shareholders'. Would it cover 'single largest shareholder' and other shareholders who would be deemed to be 'persons acting in concert' with the controlling shareholder.

The related-party transaction norms can be a significant guiding factor. SEBI's listing regulations currently require extensive checks and balances, and disclosures, of related party transactions.

The entities which qualify as a related party would have influence or control over the operations of the company and these could be the first category of shareholders who could be considered as 'controlling shareholders'.

Another factor determining 'control' would be the level of influence a shareholder has over the board of directors, which decides on most key operational matters, including expansion of activities,

How shareholders vote in shareholder meetings on key resolutions involving the appointment, re-appointment and remuneration of chief executive officers, managing directors and other non-independent directors, would also be a factor in determining whether they are acting in concert.

The removal of the concept of promoter would have ramifications for listed companies from the banking and insurance sectors where the provisions of the Reserve Bank of India Act and Insurance and Regulatory Development Authority of India Act play a role.

The SEBI paper also notes that an important tool of enforcement in the securities market is the freezing of promoter holdings and a shift to a new concept of controlling shareholders would necessitate reorientation of enforcement strategies.

Before instituting a major reform such as doing away with the promoter group concept, it will be better if views from a wider section of the market are taken and put in a new paper. The entire host of issues relating to what would constitute controlling shareholder and persons acting in concert needs to be discussed at length in such a paper.

LATEST ANNOUNCEMENTS

* SEBI makes dividend distribution policy must for top 1,000 listed cos (PTI)

* SEBI seeks public view on recommendations for social stock exchange

* SEBI asks AMCs to pay 20% of key employees' compensation as MF units

* SEBI approves appointment of Arun Raste as MD of NCDEX

ORDERS, ADJUDICATION PROCEEDINGS

* NSE sues SEBI for access to 60-bln-rupee corpus (ET)

* SEBI disgorges 83 mln rupees in PC Jeweller insider trading case

* SEBI bans 6 entities for 2 yrs for manipulative trades in Biocon share trading case (PTI)

* SEBI orders co to refund 298 mln rupees raised in deemed public issue

REGULATIONS (Announced in the past three months)

* SEBI paper proposes to replace promoter with controlling shareholder

* SEBI paper proposes safeguards against misuse of client collateral

* SEBI notifies new business sustainability report for listed cos

* SEBI extends reporting timelines for debenture trustees by 45 days

DATA FROM SEBI

IPO/FPO/NFO

* GoAir files draft papers with SEBI for 36-bln-rupee IPO

* Aditya Birla Sun Life MF seeks SEBI's OK for Nifty IT ETF

* Sona Comstar gets SEBI's nod for 60-bln-rupee IPO

* Fincare Small Finance Bank files draft prospectus with SEBI

SEBI IN NEWS

* SEBI vets stake control in Zomato's IPO papers for China firm's role (BS)

* SAT upholds SEBI order against 63 Moons Technologies in STP case (PTI)

* SEBI to auction property of PVP Global Ventures on May 12 (PTI)

* SEBI exempts Anurag Benefit Trust from open offer obligations (PTI)

Sources - Television, Print, or Web Editions of: PTI--Press Trust of India, BS--Business Standard, ET--The Economic Times, Moneycontrol, CNBC TV-18, Mint, BL--The Hindu Business Line, TH--The Hindu, RTR—Reuters, BT--Business Today, IANS--Indo-Asian News Service, IE— The Indian Express, ToI--The Times of India, BB-Bloomberg Quint

Internet links: http://www.sebi.gov.in

# –-- Data not available for May 6-7 and May 10-11

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Compiled by Vijay Malkar

Edited by Vandana Hingorani

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