SEBI Relaxes Norms For Rights Issues In the Current Scenario

SEBI has decided to give one-time relaxation to listed entities from complying certain Regulations of SEBI ICDR Regulations, 2018 related to the Rights Issue.

In view of the challenges arising out of COVID-19 pandemic and various other surveillance measures in place, it has been decided to grant the following relaxations from adhering to the Regulations which are required to be followed during the Right Issue process. Keeping in view about this situation Securities and Exchange Board of India (SEBI) has decided to give one-time relaxation to listed entities from complying certain Regulations of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (‘ICDR Regulations’) related to the Rights Issue.

Introduction

Security and Exchange Board of India (SEBI) in its vide circular EBI/HO/CFD/DIL2/CIR/P/2020/78 dated May 06, 2020 has decided to give one-time relaxation to listed entities from complying certain Regulations of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (‘ICDR Regulations’) related to the Rights Issue. The relaxation comes in the current scenario of the COVID-19. The circular issued comes into force immediately which will be valid till all right issues opening up-to July 31, 2020.

The Market Regulator has provided relief to companies from complying with the procedure for the Right Issues by giving relaxation in certain Regulations which are summarized below.

ICDR Regulations	Compliance Required	One Time Relaxation Provided	Other Conditions (If any)
Regulation 76	A rights issue application shall be made only through ASBA facility.	The issuer along with lead managers and other parties related to the issue shall constitute an optional mechanism (non-cash mode only) to accept the applications of the shareholders to apply to rights issue subject to ensuring that no third-party payments shall be allowed in respect of any application.	No Conditions
Regulation 77(2)	Service of the documents abridged letter of offer, application form and other issue material to shareholders may be done through electronically.	In case if the company fails to adhere to modes of dispatch through registered post or speed post or courier services due to Covid-19 conditions it will not be treated as non-compliance during the said period.	The issuers shall publish required & necessary documents on the websites of the company, registrar, stock exchanges and the lead managers to the rights issue.
Regulation 84(1)	Advertisement Shall provide additional details and describes the manner for the shareholders who wish to apply for the issue and have not been served notice electronically.	Issuer has the flexibility to publish the advertisement in additional newspapers above those required in Regulation 84.	The advertisement should also be made available on: A. Website of the Issuer, Registrar, Lead Managers, and Stock Exchanges. B. Television channels, radio, the internet, etc. to spread information related to the process.
For all offer documents filed until July 31, 2020		A. Authentication/ certification for offer documents can be done through DSC. B. The issuer shall provide a procedure to inspect documents electronically.

Relaxation To Dematerialized Right Entitlement(Res)

SEBI on January 22, 2020, issued circular SEBI/HO/CFD/DIL2/CIR/P/2020/13 which eased the Right Issue process to make it more effective & efficient by Introducing dematerialized Rights Entitlements (REs).

Further Para 1.3.4 of the said circular, says that physical shareholders are required to provide their Demat account details to Issuer/ Registrar for credit of REs. But due to present scenario, physical shareholders who have not been able to open a Demat account or are unable to communicate their Demat details to the issuer/ registrar within the stipulated time, then such shareholders may be allowed to submit their application subject to following conditions:

• Issuer along with lead managers and other recognized intermediary shall institute a mechanism to allow physical shareholders to apply in the rights issue and ensure that all necessary steps have been taken to communicate.
• Such shareholder shall not be eligible to renounce their rights entitlements.
• Physical shareholders shall receive shares in respect of their application, only in Demat mode.

Issuer to ensure the following

Further, the issuer along with lead managers in respect of mechanisms given under Regulation 76 & dematerialized rights entitlements shall ensure the following:

• The mechanism shall be considered as an additional process not a replacement of the existing process.
• The issuer shall satisfy that mechanism to have transparency, robust, and have a proper check and balances system that should be aimed at investors without incurring any additional cost.
• To guide & resolve problems related to the application process faced by investors, the issuing company shall setup FAQ or online investor helpline.
• The issuer along with lead managers and other parties to the issue shall be responsible for all investors’ complaints.

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By – Jaya Sharma and Ayush Maheshwari

The Author Jaya Sharma is the Founder of Jaya Sharma & Associates and the Co-author is an Associate at the same Company Secretary (CS) Firm.

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Source

1. https://www.sebi.gov.in/legal/circulars/may-2020/relaxations-relating-to-procedural-matters-issues-and-listing_46652.html
2. https://www.sebi.gov.in/legal/circulars/jan-2020/streamlining-the-process-of-rights-issue_45753.html

Disclaimer

Absolute Care is taken to prepare this article however inadvertently if any errors occur then the Author shall not be held responsible for any such cause. The Content published is only for educational purposes and shall not be construed as the rendering of any Professional Advice in any manner whatsoever. Readers must exercise their own Judgement and refer the original source before any implementation. Further, the content is an original work of the author and may be used only after written permission.