Regulatory Updates #26: SEBI eases listing norms for startups, Lok Sabha clears bill for faster debt-recovery & more

Bar & Bench will bring to you the latest regulatory and policy updates from different ministries and regulatory authorities. In this edition of the Bar & Bench Regulatory Updates, we analyse the latest updates by the Securities and Exchange Board of India (SEBI) and the Ministry of Corporate Affairs (MCA).

SEBI eases listing norms for startups

In response to the feedback received from market participants, regarding the difficulties faced by them while listing themselves on the Institutional Trading Platform (ITP), SEBI has floated a discussion paper seeking to relax the norms. The ITP, which was introduced in 2013, facilitated capital raising for small and medium enterprises without necessarily doing an Initial Public Offer of equity.

Interestingly, the first change proposed is changing the name of Chapter XC of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 from ‘Listing of Institutional Trading Platform‘ to ‘High-tech Start-up & other new business Platform‘ .

Following are the key highlights of the changes introduced in the discussion paper:

• The rules, as they exist, make it mandatory for qualified institutional buyers to hold at least 25% of the pre-issue capital if a company were to list on the ITP. However, SEBI has proposed to expand the definition of institutional investor to include other categories of investors, such as, family trusts, non banking financial companies registered with the Reserve Bank of India (RBI), intermediaries registered with the SEBI, Category III Foreign Portfolio Investors and other entities which meet the prescribed criteria;
• The total allocation to institutional investors has been brought down to 50% of the issue from the existing 75%, whereas allocation to non-institutional investors has been increased from 25% to 50%;
• Discretionary  allotment may be raised to 25% from the existing 10%;
• SEBI has also considered doing away with the restriction on a single shareholder not being able to own more than 25% of the company’s post-issue capital;
• SEBI has also proposed reducing the minimum trading lot from the existing Rs. 10 lakh to Rs. 5 lakh.

MCA notifies amendments to Incorporation Rules

The MCA has notified the third set of amendments to the Companies (Incorporation) Rules, 2014. The amendments, inter alia, propose the following changes:

• While previously no ‘person’ was allowed to be a member or nominee of more than ‘a’ one person company, this restriction is now limited to only a ‘natural person’;
• While members are required to sign the memorandum and articles of association, illiterate members are were allowed to affix thumb impressions or unique marks. The amendment allows for ‘type written’ or ‘printed’ particulars of the subscriber so long as he/she appends his/her signature;
• Every subscriber who holds a valid Director Identification Number with updated details, will not be required to submit proof of identity and residence;
• In addition to Government’s power to notify documents required to be printed by companies, all companies conducting online business will mandatorily be required to disclose a bunch of details such as Corporate Identity Number, telephone number, address of registered office etc.;
• While earlier a company wasn’t allowed to change its name if it had defaulted in filing statutory documents with the Registrar, a company may now do so once the default has been made good;
• Companies are no longer require to serve notice to the SEBI for shifting of registered office;
• A new rule i.e. Rule 37 has now been inserted which provides for the rules and procedure for conversion of an unlimited liability company into a limited liability company by shares or guarantee

MCA appoints Special Court for speedy resolution

The MCA has designated Court of Additional Sessions in Dwarka as a Special Court for the purposes of providing speedy trial of offences punishable under the Companies Act, 2013 with imprisonment of two years or more under the said Act.

Lok Sabha clears bill to fast track debt-recovery

The Lok Sabha earlier this week passed the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016 which seeks to amend four laws for expeditious recovery of bad loans by the banks. The bill will now go to the Rajya Sabha for its approval.

The following acts will be amended:

• Securities and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act),
• Recovery of Debts due to Banks and Financial Institutions Act, 1993,
• Indian Stamp Act, 1899 and
• Depositories Act, 1999

Following are the key highlights of the proposed changes:

• Empowers RBI to (i) audit and inspect the Asset Reconstruction Companies (ARCs); (ii) to appoint central bank officials to board of ARCs; (iii) impose penalties for non-compliance with its directives;
• Removes the restriction on sponsors of ARCs from having controlling stake in the company,  and allows RBI to determine a ‘fit and proper’ criteria to be a sponsor for an ARC;
• Changes in SARFAESI Act allow secured creditors to take collateral against which a loan has been provided, upon default in repayment. It also provides that the process will have to be completed within 30 days (as opposed to the existing 45 days time frame) by the District Magistrate and he will also assist the lender in taking over the management if the lender has secured more than 51% stake in the company through conversion of debt into equity;
• Creation of a central registry to maintain records of transactions related to secured assets;
• Provides for electronic filing of recovery applications, documents and written statements in the Debt Recovery Tribunal.