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JUN 20, 2017

SEBI Tightens the Noose Against Defaulters

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In order to mitigate the delay in issue, allotment and listing of Securities, SEBI has, vide its Circular no CIR/CFD/DIL/57/2017 dated June 15, 2017, issued penal provisions for Companies which are not complying with the SEBI (ICDR) Regulations, 2009.

In the said Circular, SEBI has basically harped upon 3 types of violations / lapses. The same being:

Regulation Violation Fine
95(1) Delay in completion of Bonus Issue Rs. 20,000 per day of Non-compliance till the date of Compliance. If non-compliance continues for more than 15 days, additional fine of 0.01 % of paid-up capital of the entity or Rs. 1 Crore, whichever is less
75 Companies not allotting the shares on conversion of convertible securities within 18 months
108(2) Issuer not approaching the exchange for listing of equity shares within 20 days from the date of Allotment

To recapitulate, as per proviso to the Regulation 95 (1) of ICDR Regulations, the bonus issue is needed to be implemented within 2 months from the date of the meeting the board of directors wherein the decision to announce the bonus issue was taken subject to shareholders‘ approval.

SEBI has, vide the above mentioned Circular has further clarified that in respect of Bonus allotments, it shall be considered as “Implemented” upon “date of commencement of trading”.

It means for bonus shares trading shall commence within two months from the date of the board meeting in which the Bonus was announced. Any delay therein, shall be deemed a non-compliance and accordingly liable for penalties.

The SEBI Circular has further clarified the following:

  • Paid up capital for the purpose of calculating above fine shall be the paid up capital as on first day of the FY in which the noncompliance occurs.
  • Fine shall be payable within 15 days of the Notice from Stock Exchange
  • Name of the Non-Compliant entity will be displayed on the website of the stock exchanges along with the fine imposed and fine received.
  • Stock Exchange may initiate appropriate enforcement action, including prosecution in case of nonpayment of fine.
  • In case of issuance of Bonus Shares, if the company is noncompliant, the exchange may grant listing approval of shares allotted to public, however listing approval for shares allotted to promoters will be granted only after the payment of requisite fine.

CP Comment: The Capital Market Regulator has tightened compliance norms by levying hefty penalties and provision to prosecute promoters of companies that do not comply with disclosure norms. SEBI has prescribed a penalty of up to ₹1 crore and initiating enforcement action on defaulting companies.

Now the Listed Corporates have to be pro-active and keep in mind these penal provisions while planning for issuing/converting/ allotting Shares.

However, we are of the opinion that in respect of Bonus Allotments, the 60 days period should be replaced with 60 working days.

Click here to download Circular No.: CIR/CFD/DIL/57/2017