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Welcome to Taxmann.com | Newsletter – Reporting the Facts with Taxmann's Analysis. Today's Edition Brings You Updates on Company & SEBI Laws | FEMA Banking & NBFCs | Insolvency & Bankruptcy Code (IBC) | Competition Laws.
SEBI proposes review of framework on alignment of interest of designated employees of AMCs with interest of unitholders
SEBI has released a consultation paper on a review of the regulatory framework on alignment of the interest of designated employees of an asset management company (AMC) with the interest of unitholders. Currently, AMCs are required to invest 20% of a designated employee’s total remuneration, including non-cash compensation, in schemes over which they have oversight. SEBI has now proposed that this requirement may be reduced from 20% and made applicable slab-wise, based on CTC of the employees.
RBI amends KYC norms to align with the Prevention of Money Laundering (Maintenance of Records) Rules, 2015
The RBI has amended Master Direction on KYC, aligning it with updates to the Prevention of Money Laundering (Maintenance of Records) Rules, 2005. Now, if an existing KYC compliant customer of a Regulated Entity (RE) desires to open another account or avail any other product or service, there shall be no need for a fresh Customer Due Diligence (CDD) exercise. Further, periodic KYC updates must be uploaded to Central KYC Records Registry, with notification of updates to all relevant entities.
Amount used via fictitious accounts to block IPO shares reserved for retail applicants to be treated as proceeds of crime
Dushyant Natwarlal Dalal v. Deputy Director Directorate of Enforcement - [2024] 168 taxmann.com 30 (SAFEMA - New Delhi)
In the instant case, consequent to preliminary scrutiny, based on forged documents, SEBI found that the large number of Bank and Demat Accounts were opened by Key Operators in fictitious names, using identity of Bank and Demat Accounts.
Those Key Operators had cornered IPO shares reserved for retail applicants by making application in retail category through medium of thousands of fictitious / benami IPO applicants with each of application being for small value so as to be eligible for allotment under retail category.
Subsequent to receipt of IPO allotment these fictitious/benami allottees had transferred shares to their principals who in turn transferred shares to financiers including appellant that had originally made available funds for executing game-plan.
Further, financiers in turn sold most of these shares on first day of listing thereby realizing windfall gain of price difference between IPO price and listing price. Also, the respondent had taken note of unlawful gain out of sale of shares which could be termed to be proceeds of crime’.
Thereafter, respondent attached bank and Demat accounts found involved in case. It was a case of appellant that proceeds of crime’ could have been difference of amount, i.e. sale proceeds of shares allotted to appellant minus original amount injected for seeking allotment.
However, in instant case, even money refunded to unsuccessful applicants had been considered to be proceeds of crime’ though amount was procured on loan from Bank or financed by Financiers.
In fact, amount landed to appellants was not tainted money so as to consider it to be proceeds of crime’. It was noted that finance was made for illegal purpose. Thus, entire amount involved therein would be considered to be proceeds of crime’.
It could not be considered to be proceeds of crime’ only to extent of successful applications leaving refund amount pursuant to unsuccessful applications. Entire amount was used in illegal manner with criminal intention of cheating at cost of genuine applicants who were deprived to get allotment of shares because of fraudulent act of appellant and others.
Thus, the Appellate Tribunal SAFEMA held that the entire amount used for fraudulent acts had rightly been considered to be proceeds of crime’.
Whether regulatory approvals would be considered as unpublished price sensitive information?
Background
Unpublished Price Sensitive Information ['UPSI'] is any event or information which, when publicly available, would affect the price of the securities of the company materially. Certain events or information undertaken by listed entities require approval of regulators or financial institutions or third-party approvals under a contractual arrangement. These approvals are sometimes taken post-approval of the transaction or event by members of the company in a general meeting. The question that arises is whether the process of receipt of these approvals would be considered as UPSI even when it is already disclosed to members that the event or transaction is subject to approval.
Introduction
Regulatory approval in the nature of a no objection certificate, regulatory approvals for the launch of the product, removal of sanctions on products produced in a factory, etc., are required by the listed entity in a particular field in order to carry on a particular transaction or event. It always not confirmed or certain that the regulatory approvals would be received or not?
Non-receipt of regulatory approvals would lead to non-completion of transactions or events that are undertaken by the listed entity. This would certainly have a material impact on the listed entity and its share price consequently.
So even when the shareholders were made aware that a particular transaction or event is subject to regulatory approval or third-party approval, the receipt or rejection of approval will still be considered as UPSI as there is no certainty with respect to receipt of approvals.
Here are few cases where regulatory or third-party approvals were considered as UPSI.
A.?Adjudication order in the matter of PC Jeweller Ltd.: In this case insiders traded in the shares of PC Jeweller when they were in possession of UPSI relating to withdrawal of buyback by board of directors of PC Jeweller as its lender State Bank of India had refused to give no objection certificate for going ahead with buyback. PC Jeweller had decided to buyback its shares which was subject to approval of principal lender State Bank of India. State Bank of India refused to give NOC to PC Jeweller. Pursuant to this PC Jeweller could not go ahead with buyback. This non-receipt of NOC was considered as UPSI by SEBI. SEBI held that this refusal by State Bank of India affected the change in capital structure of PC Jeweller. So even when shareholders were aware that PC Jeweller is going to undertake the buyback but it was subject to approval of SBI and hence non-receipt of NOC from State Bank of India was considered as UPSI.
B.?Adjudication order in the matter of Shakti Pumps Ltd ['SPIL']: In this case the SPIL had applied for permission to set up in house R&D facilities u/s 35(2AB) of Income Tax Act 1961. In this regard SPIL made an application to Income Tax Department for same. Prior to getting this recognition from Income Tax SPIL needed to get permission from DSIR. This permission was already received by SPIL. This entire process of obtaining recognition from Income Tax Department for setting up in house R&D facility was considered as UPSI by SEBI. SEBI considering this as UPSI had stated that getting recognition to set up in house R&D facility would help company avail fiscal incentives. This would materially impact financial position of the company. Hence the regulatory approval of Income Tax department was considered as UPSI.
C.?Adjudication order in the matter of Suven Life Sciences Ltd.: In this case the question was whether passing of clinical trials of a drug for public use would be considered as UPSI? In this regard, SEBI held that when a medicine clears clinical trial, it moves closer to being ready to be sold for commercial use in the market. Clinical trial approval is a long-drawn process. So even when the market is aware that the drug is patented but the actual regulatory clearance of all three clinical trials would make the drug ready for commercial use. As the passing of clinical trials involves considerable progress hence, it would be considered price-sensitive information.
Conclusion
Regulatory approval pertaining to any nature of UPSI (viz. capital structure or launch of new product, etc.) would be considered UPSI even when members are aware that such regulatory approval is pending. Regulatory approval would allow the listed entity to either go ahead with the transaction or cancel the transaction. There is uncertainty whether the approval will be received or not. So once approval is received or rejected, till the time disclosure is made to the stock exchange, it will be considered as UPSI.
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2 周This newsletter is a goldmine of information! The article about regulatory approvals being considered unpublished price sensitive information is very insightful. I'm curious to learn more about how companies can ensure they are compliant with regulations when it comes to disclosing such information. @Taxmann, do you have any resources or upcoming events that delve deeper into this topic? ??