[The following post is contributed by Supreme Waskar, who is a corporate lawyer in Mumbai]
In an earlier post on February 18,
2012, Mr. Umakanth Varottil had discussed
the informal guidance issued by the Securities and Exchange Board of India
(SEBI) to Strides Arcolabs in connection with the company’s eligibility to
issue securities to its promoters on a preferential allotment basis. Through its
informal guidance dated September 12, 2016 in the
matter of KJMC Financial Services Limited (“KJMC”), SEBI has utilized the opportunity to
reiterate the legal position on the company’s
eligibility to issue securities to its promoters on a preferential allotment
basis.
2012, Mr. Umakanth Varottil had discussed
the informal guidance issued by the Securities and Exchange Board of India
(SEBI) to Strides Arcolabs in connection with the company’s eligibility to
issue securities to its promoters on a preferential allotment basis. Through its
informal guidance dated September 12, 2016 in the
matter of KJMC Financial Services Limited (“KJMC”), SEBI has utilized the opportunity to
reiterate the legal position on the company’s
eligibility to issue securities to its promoters on a preferential allotment
basis.
Background
During April 2016, the promoter of KJMC
executed an inter-se transfer of equity shares by way of gift to his wife. There
was no change in the promoter holding pursuant to the above inter-se transfer
and it was a gift without any consideration.
executed an inter-se transfer of equity shares by way of gift to his wife. There
was no change in the promoter holding pursuant to the above inter-se transfer
and it was a gift without any consideration.
Issues
1.
Whether
inter-se transfer of shares by way of gift amounts to sale of shares?
2.
Whether
exempted inter-se transfer of shares by way of gift by the promoter(s) will
make transferor/promoter(s) ineligible to issue securities on preferential
allotment basis in terms of regulation 72(2) of the SEBI (ICDR) Regulations,
2009 (“Regulations”)?
Legal scenario
In terms of regulation 72(2) of the
Regulations, where any person belonging to promoter(s) or the promoter group
has sold his equity shares in the issuer during the six months preceding the
relevant date, the promoter(s) and promoter group shall be ineligible for
allotment of specified securities on preferential basis. Further as per section
4 of the Sales of Goods Act, 1930, “sales” means the property in the goods are transferred
from the seller to the buyer for a price.
Regulations, where any person belonging to promoter(s) or the promoter group
has sold his equity shares in the issuer during the six months preceding the
relevant date, the promoter(s) and promoter group shall be ineligible for
allotment of specified securities on preferential basis. Further as per section
4 of the Sales of Goods Act, 1930, “sales” means the property in the goods are transferred
from the seller to the buyer for a price.
SEBI’s view
The primary intention of the Regulations is
not with respect to consideration but with “change in ownership of equity
shares”. Accordingly, an inter-se transfer of shares by way of gift will be
considered as “sale” as envisaged in the regulation 72(2) of the Regulations,
thereby making the promoter(s) and promoter group ineligible for allotment of
specified securities on preferential basis.
not with respect to consideration but with “change in ownership of equity
shares”. Accordingly, an inter-se transfer of shares by way of gift will be
considered as “sale” as envisaged in the regulation 72(2) of the Regulations,
thereby making the promoter(s) and promoter group ineligible for allotment of
specified securities on preferential basis.
Comments
In
terms of the Sale of Goods Act, 1930, a transfer without consideration does not
amount to sale. However, for the purpose of regulation 72(2) of the Regulations,
a transfer without consideration even if
exempted under regulation 10 of the SEBI Takeover Regulations from making open
offer, shall not be eligible for exemption of the application of regulation
72(2) of the Regulations. SEBI’s informal guidance in both these cases clearly
indicate that exemptions under regulation 10 of the SEBI Takeover Code are not
blanket exemptions from application of all the provisions of securities laws.
terms of the Sale of Goods Act, 1930, a transfer without consideration does not
amount to sale. However, for the purpose of regulation 72(2) of the Regulations,
a transfer without consideration even if
exempted under regulation 10 of the SEBI Takeover Regulations from making open
offer, shall not be eligible for exemption of the application of regulation
72(2) of the Regulations. SEBI’s informal guidance in both these cases clearly
indicate that exemptions under regulation 10 of the SEBI Takeover Code are not
blanket exemptions from application of all the provisions of securities laws.
In
this context, the issues and concerns raised in the earlier post on this Blog
would also operate to the present informal guidance.
this context, the issues and concerns raised in the earlier post on this Blog
would also operate to the present informal guidance.
–
Supreme Waskar
Supreme Waskar