SEBI NOTIFIES THE REGULATIONS ON NON-CONVERTIBLE REDEEMABLE PREFERENCE SHARES

Securities and Exchange Board of India (“SEBI”) on 12 June 2013 notified SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013 (“Regulations”) and bestowed the much needed clarity on the issuance and listing of the non-convertible redeemable preference shares (“NCRPS”). While before notification of these Regulations, SEBI (Issue and Listing of Debt Securities) Regulations, 2008[1] and SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009[2] (“Pre-existing Regulations”) were in place to deal with issuance and listing of certain securities, the Pre-existing Regulations did not cover the issuance and listing of NCRPS. Notification of the Regulations therefore bridges this gap. Given that in the last 3 (three) years, more than INR 250,000,000,000 (Indian Rupees Two hundred and fifty billion) has been raised through preference share issuance by 295 companies and that in 2011-12 alone, 147 issuers have tapped this market to raise INR 100,000,000,000 (Indian Rupees One hundred billion)[3], the notification of these Regulations is a very welcome step primarily because they offer (a) an additional opportunity to companies to raise funds by providing for listing of NCRPS and; (b) transparency in the process for issuance of NCRPS, giving the investors an opportunity to make an informed investment. The Regulations are applicable to public issue of NCRPS, listing of NCRPS issued through public issue or on a private placement basis and issue of perpetual non-cumulative preference shares and perpetual debt instrument issued by banks on private placement basis. The key features of the Regulations are as follows:

1. Lays down the procedure, conditions and compliances for issue of NCRPS in a public issue;
2. Makes the listing of NCRPS desired to be offered in a public issue mandatory and sets out the conditions for such listing;
3. Makes the listing of NCRPS issued on private placement basis optional and sets out conditions for such listing;
4. Lays down the conditions for continuous listing and trading of NCRPS;
5. Lays down the conditions for issuance of perpetual non-cumulative preference shares and perpetual debt instrument issued by banks on private placement basis; and
6. Lists down the powers of SEBI with regard to all of the above.

(The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or contact@mhcolaw.com for any assistance.)

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[1] Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008 are applicable to issuance and listing of debt securities. Debt securities mean non-convertible debt securities which create or acknowledge indebtedness, and include debenture, bonds and such other securities of a body corporate or any statutory body constituted by virtue of a legislation, whether constituting a charge on the assets of the body corporate or not.
[2] Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 are applicable to issuance and listing of equity shares and convertible securities.
[3]http://articles.economictimes.indiatimes.com/2013-03-07/news/37531845_1_preference-shares-equity-savings-offer document

REAL ESTATE BILL – 2013

Press Information Bureau (“PIB”) has recently made a press release[1] (“Press Release”) stating that the Union Cabinet has approved the Real Estate (Regulations and Development) Bill, 2013 (“Bill”). A copy of the Bill is still not available for the public review. However, the Press Release summarizes the object, benefits and advantage of the bill.

1. Key objects of the Bill are:
   1. To provide uniform regulatory environment;
   2. Protect consumer interest;
   3. Speedy adjudication of disputes; and
   4. Orderly growth of the real estate sector.
2. Salient features of the Bill are:
   1. Applicability: The Bill is applicable to the only to residential area. It seems that commercial premises will not be covered under this Bill.
   2. Regulatory Authority: Each state government to establish regulatory authority (“Authority”) with specified functions and powers to monitor real estate transactions. The function of the Authority is to act as a nodal agency to co-ordinate efforts regarding development of the real estate sector in each of the state.
   3. Project Registration: Promoter has to compulsorily register his project with the Authority. Further, Promoter shall disclose all details about the project (name, type, plans, partnership companies, names of persons involved with constructions, area for sale based on standardized market). Authority will grant registration to Promoter if it is satisfied that promoter has complied with all the formalities. The Bill also provides punitive provisions including canceling the registration of the Project in case the the Promoter contravenes the
   4. Agent Registration: All the real estate agents (“Broker”) are also required to be registered with the Authority to sell immoveable property. Further, the Broker will not facilitate the sale of any immovable property which is not registered with the Authority.
   5. Compulsory Deposits: Promoters will be required to deposit 70 (seventy) percent or such amount as notified by the appropriate state government, realized from the allottees from time to time with the scheduled banks. This amount shall not be used by the Promoter other than cost related to the allottees Project.
   6. Dispute Settlement Mechanism: The Authority will establish fast track dispute resolution mechanism for settlement of the disputes between the Promoter and the Allottee.
   7. Real Estate Appellant Tribunal: Appropriate government to establish Real Estate Appellate Tribunal to hear appeal against the order of Regulatory Authority.
   8. Central Advisory Council: The Council will be set up to advice the central government on implementation on the Real Estate (Regulations and Development) Act, 2013.
   9. Comments: We believe the Bill is introduced to bring evenness and consistency in the reality sector to promote orderly growth in the industry. If the bill if passed by the parliament, it will bring transparency and give tool to the end customer to take action against the Promoters in the event of the Promoters default and reshape the fairness in the reality system.

(The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or contact@mhcolaw.com for any assistance.)

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[1] PIB Press Release ID: 96440 dated 5 June 2013