SEBI LODR AMENDMENT | SHARES IN LISTED COMPANIES TO BE HELD ONLY IN DEMAT FORM.

 The Securities and Exchange Board of India (``SEBI``) has recently notified the fourth amendment (``Amendment``) to the SEBI Listing Obligations and Disclosure Requirements Regulations, 2015 (``LODR Regulations``). By these amendments, SEBI has prohibited the transfer of securities in physical form of listed companies. The amendments were notified on 8 June 2018 and will come into effect from 5 December 2018. Earlier, only members of the promoter group were required to hold their securities in demat form. However, this requirement would now be applicable to public shareholders as well.

The Amendment primarily applies to Regulation 40(1) of the LODR Regulations and the change in the Regulation is set out below:

Pre-amendment: Prior to the Amendment Regulation 40(1) of the LODR Regulations read as follows:

``Save as otherwise specified in provisions of securities laws or Companies Act, 2013 and rules made thereunder, the listed entity shall also comply with the requirements as specified in this regulation for effecting transfer of securities``

Post amendment: After the Amendment, Regulation 40(1) reads as follows:

``Save as otherwise specified in provisions of securities laws or Companies Act, 2013 and rules made thereunder, the listed entity shall also comply with the requirements as specified in this regulation for effecting transfer of securities``

``Provided that, except in case of transmission or transposition of securities, requests for effecting transfer of securities shall not be processed unless the securities are held in the dematerialized form with a depository.``

Therefore, all transfers of securities in listed companies post 5 December 2018 can only be done if the securities are held in demat form. However this stipulation will not apply to securities which are transmitted to legal heirs of deceased holders or transposition of securities.


MHCO COMMENT: It is advisable to convert all existing securities in physical form of listed companies to demat form before 5 December 2018 in order to trade in these securities.

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 legalupdates@mhcolaw.com for any assistance 

THE INSOLVENCY AND BANKRUPTCY CODE (AMENDMENT) ORDINANCE, 2018 | FAR REACHING CHANGES

Introduction

Pursuant to the Insolvency Law Reform Committee Report dated 3 April 2018 (Report), the Government has promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 (Ordinance) on 6 June 2018 to implement the recommendations in the Report by amending the Insolvency and Bankruptcy Code, 2016 (IBC).

The objectives of the Ordinance are inter alia (i) to balance the interests of various stakeholders in the IBC especially interests of home buyers and micro, small and medium enterprises; (ii) promoting resolution over liquidation of the corporate debtor by lowering the voting threshold of the Committee of Creditors (CoC); and (iii) streamlining provisions relating to eligibility of resolution applicants.

This update briefly summarises the important amendments introduced by the Ordinance in line with its objectives.

Important Amendments

1. Inclusion of Home Buyers in the IBC.
   • An Explanation has been added to the definition of “financial debt” in Section 5(8)(f) of the IBC which provides that any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of borrowing. The definition of allottee and real estate project are to be taken from the Real Estate (Regulation and Development) Act, 2016. Thus, home buyers who have paid an advance or a deposit would be deemed to be financial creditors under the IBC;
     
     
   • A new sub-section 6A has been added to Section 21 of the IBC which deals with the CoC. Under this sub-clause where a financial debt is owed to a class of creditors exceeding a specified number, the interim resolution professional (IRP) must make an application to the National Company Law Tribunal along with a list of all financial creditors containing the name of an insolvency professional (IP) (other than the IRP) to act as the authorised representative of the class of creditors and the NCLT must appoint such IP prior to the first meeting of the CoC. The authorised representative (AR) must attend meetings of the CoC and vote on behalf of the financial creditors in the manner set out in the Ordinance;
     
     
   • A new Section 25A has been added which deals with the manner in which an AR is to represent the financial creditors on whose behalf he acts at the meetings of the CoC. In brief: (i) AR must take the prior voting instructions of the financial creditors whom he represents through physical or electronic means. AR must act in the interests of the financial creditor he represents and vote in accordance with the prior instructions received from such financial creditor. If AR represents multiple financial creditors then he must cast his vote in respect of each financial creditor in accordance with the instructions received from such financial creditor to the extent of his voting share; (ii) If any financial creditor does not give instructions to his AR, the AR must abstain from voting to the extent of the voting share of such financial creditor; (iii) The instructions received from the financial creditor must be filed with the CoC;

2. MSME Relaxation
   • In relation to MSME`s a new section 240-A has been added which removes two of the disqualifications to be a resolution applicant for such MSME. The first relates to having an account that has been classified as a non-performing asset for a period of one year and the second relates to having executed a guarantee in relation to the debt of a corporate debtor against whom an insolvency application has been admitted. Further, the Central Government has been empowered to exclude the application of the IBC to MSMEs.

3. Lowering the Voting Threshold of the CoC
   • The voting threshold for decisions of the CoC under various provisions of the IBC including Section 12 (Time Limit for Completion of Insolvency Resolution Process), Section 22 (Appointment of Resolution Professional) Section 27 (Replacement of the Resolution Professional by the Committee of Creditors) Section 28 (Approval of Committee of Creditors for Certain Actions) has been reduced from 75% to 66%;
     
     
   • Further, decisions of the CoC other than as specified in the IBC can be taken by a simple majority (51%) of the creditors;

4. Other Important Changes
   • Written consent of the resolution professional is now required for any appointment under the IBC;
     
     
   • A new Section 12A has been introduced which provides for the NCLT to allow for a withdrawal of an application admitted under the IBC with the approval of 90% of the creditors on the CoC in a manner that is to be prescribed;
     
     
   • The moratorium under Section 14 of the IBC no longer applies to a guarantor who has given a guarantee in relation to the debt of the corporate debtor;
     
     
   • The Limitation Act, 1963 now applies to proceedings before all the adjudicating authorities under the IBC. 
    
   MHCO COMMENT
   The inclusion of home buyers as financial creditors under the IBC provides another avenue for such home buyers to act against errant developers. This inclusion is a source of debate since RERA was also enacted for this purpose. Over the last two years the IBC has been seen as a speedy way of getting relief and this could bring succour to home buyers who have parted with their hard-earned earnings to developers who are unable to complete projects. The only drawback of the IBC is that it is not a recovery mechanism but the nature of the insolvency resolution process leads to a settlement in a large number of cases. Issues however remain on how the voting process at the CoC would be conducted where there are a number of homebuyers represented by an authorised representative. The Insolvency and Bankruptcy Board has been tasked with prescribing this process. The other amendments to the IBC under the Ordinance seek to set at rest unresolved issues that had arisen and for which clear cut Court / Tribunal rulings were absent. While a positive step, implementation of the provisions of the Ordinance would need to be assessed.
   
   This update was released on 19 June 2018.

 AMENDMENTS TO THE COMMERCIAL COURTS ACT

 The Government promulgated an ordinance on 3 May 2018, amending the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (“Commercial Courts Act”). The Commercial Courts Act had led to the establishment of certain special courts to deal with commercial disputes, including the establishment of a commercial division in High Courts. The ordinance seeks to introduce important amendments to the Commercial Courts Act, bringing a wider array of matters within its ambit and improving the adjudication of commercial disputes.

The changes introduced by the ordinance are summarized below: 

• Pecuniary value of commercial disputes: Earlier, commercial disputes were defined as a certain class of disputes, where the value of the subject matter was not less than Rs.1 crore. The ordinance has now reduced this pecuniary value to Rs. 3 lakhs, thereby bringing in a wider array of disputes within the ambit of the commercial courts.

• Commercial Courts at the district level: Since the pecuniary value of commercial disputes have been significantly reduced, the ordinance proposes to constitute commercial courts at the district level, for areas over which High Courts exercise ordinary original civil jurisdiction, for matters exceeding Rs. 3 lakh but not exceeding the pecuniary jurisdiction of such district courts.

• Mandatory mediation prior to institution of the suit: For commercial suits which do not seek urgent ad-interim reliefs, the suit can only be instituted after the plaintiff has gone through a new compulsory procedure of pre-institution mediation in accordance with the rules prescribed by the Government. Such mediation is to be completed within three months from the date of application by the Plaintiff. The period of the mediation is excluded for the purposes of computing limitation under the Limitation Act, 1963.

• Commercial Appellate Courts: The Ordinance provides that any person aggrieved by a judgement/order of a commercial court below the level of a district judge may appeal to the commercial court within a period of 60 days from the date of the judgement or order. Any person aggrieved by the judgement/order of a commercial court at the level of a district judge exercising original civil jurisdiction or the commercial division of a High Court can appeal to the commercial appellate division of that High Court within a period of 60 days from the date of that judgement/order.

MHCO COMMENTS: 

The amendments are certainly welcome and will bring a much wider array of commercial disputes within the scope of the commercial courts. However, it remains to be seen whether effective adjudication is possible, with a surge in the number of commercial cases.

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 legalupdates@mhcolaw.com for any assistance