INSITE - India- Nov 2024

WITHDRAWAL OF MASTER CIRCULAR ON ISSUANCE OF NO OBJECTION CERTIFICATE FOR RELEASE OF 1% OF ISSUE AMOUNT

Summary: The Securities and Exchange Board of India (SEBI) has withdrawn the master circular regarding the No Objection Certificate for releasing 1% of the issue amount, following the amendment to Regulation 38(1) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations) on 21 November 2024. The amendment, notified on May 17, 2024, removes the requirement for issuer companies to deposit 1% of the issue amount with the designated stock exchange during public subscription. As a result, the earlier circular from November 7, 2022, is no longer valid.

In Detail: In a recent development, SEBI has issued a directive regarding the management of 1% security deposits by issuers, following amendments to Regulation 38(1) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations). Stock exchanges have been instructed to establish a standard operating procedure to handle these deposits. The new guidelines will ease the compliance process for issuers, aiming to streamline procedures and reduce the regulatory burden.

This change affects the 1% deposit requirement that issuers previously needed to maintain before a public issue. Issuers are now required to follow the updated framework, with stock exchanges responsible for notifying listed companies, publishing relevant updates on their websites, and amending their bylaws, rules, and regulations accordingly.

The circular is effective immediately and emphasizes that these updates are designed to protect investor interests while ensuring the transparency and smooth functioning of the securities market. This initiative by SEBI also aligns with its broader regulatory goals, which include promoting investor confidence and maintaining robust market practices.

This step is part of SEBI's ongoing efforts to simplify compliance requirements for companies while keeping investor protection and market integrity at the forefront.

Key Links: SEBI | Withdrawal of Master Circular on issuance of No Objection Certificate (NOC) for release of 1% of Issue Amount

PROCEDURE FOR RECLASSIFICATION OF FPI INVESTMENT TO FDI

Summary: The Securities and Exchange Board of India (SEBI) issued a new circular on 11 November 2024 that updates the process for reclassifying Foreign Portfolio Investor (FPI) investments to Foreign Direct Investment (FDI) According to the circular, when an FPI's stake in an Indian company exceeds 10%. The Custodian must notify SEBI, freeze the FPI's equity purchases, and transfer the shares to an FDI demat account once reporting to the RBI is completed.

In Detail: SEBI recently issued a circular (SEBI/HO/AFD/AFD-POD-3/P/CIR/2024/152) introducing a structured process for reclassifying investments made by Foreign Portfolio Investors (FPIs) as Foreign Direct Investment (FDI) in situations where the FPI's stake exceeds 10% of the paid-up equity capital of an Indian company. This change aligns with regulations under the Foreign Exchange Management Act (FEMA) and provides greater transparency in cross-border investment flows.

Key Details of the Circular:

1. Threshold for Reclassification:

   Under FEMA, any foreign investment exceeding 10% in an Indian company’s equity capital is treated as FDI. SEBI’s circular ensures that FPIs crossing this threshold must reclassify their holdings to FDI.

   
   

2. Custodian’s Role:

   When an FPI intends to reclassify its investment, its custodian must: (a) Notify SEBI of the intent; and (b) Freeze the FPI’s equity purchases in the company to ensure no additional shares are acquired during the reclassification process.

   
   

3. Process for Reclassification:

   Once the intent is submitted, the custodian facilitates the transfer of shares from the FPI’s demat (portfolio) account to its FDI demat account. All necessary reporting to the Reserve Bank of India, which oversees FDI compliance, must be completed before the transfer.

This procedure will take effect immediately to improve clarity and compliance with India's cross-border investment regulations.

Key Links: SEBI | Procedure for reclassification of FPI investment to FDI