Regulation 70 - Chapter VII not to apply in certain cases - Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009

CHAPTER VII PREFERENTIAL ISSUE Chapter VII not to apply in certain cases. 70. (1) The provisions of this Chapter shall not apply where the preferential issue of equity shares is made: (a) pursuant to conversion of loan or option attached to convertible debt instruments in terms of sub-sections (3) and (4) of sections 81 of the Companies Act, 1956 1 [or sub-section (3) and (4) of section 62 of the Companies Act, 2013, whichever applicable]; (b) pursuant to a scheme approved by a High Court under section 391 to 394 of the Companies Act, 1956 [or a Tribunal under sections 230 to 234 of the Companies Act, 2013, whichever applicable Provided that the pricing provisions of this Chapter shall apply to the issuance of shares under schemes mentioned in clause (b) in case of allotment of shares only to a select group of shareholders or shareholders of unlisted companies pursuant to such schemes;] (c) in terms of the rehabilitation scheme approved by the Board of Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985 [or 2 [the resolution plan approved by] the Tribunal under the Insolvency and Bankruptcy Code, 2016, whichever applicable]: 3 [Provided that the lock-in provisions of this Chapter shall apply to preferential issue of equity shares mentioned in clause (c).] (2) The provisions of this Chapter relating to pricing and lock-in shall not apply to equity shares allotted to any financial institution within the meaning of sub-clauses (ia) and (ii) of clause (h) of section 2 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (51 of 1993). (3) The provisions of regulation 73 and regulation 76 shall not apply to a preferential issue of equity shares and compulsorily convertible debt instruments, whether fully or partly, where the Board has granted relaxation to the issuer in terms of regulation 29A of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 4 [or regulation 11 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, whichever applicable], if adequate disclosures about the plan and process proposed to be followed for identifying the allottees are given in the explanatory statement to notice for the general meeting of shareholders. 5 [(4) The provisions of sub-regulation (2) of regulation 72 and sub-regulation (6) of regulation 78 shall not apply to a preferential issue of specified securities where the proposed allottee is a Mutual Fund registered with the Board or Insurance Company registered with Insurance Regulatory and Development Authority 6 [of India or a Scheduled Bank listed under the Second Schedule of the Reserve Bank of India Act, 1934 or a Public Financial Institution as defined in clause 72 of section 2 of the Companies Act, 2013].] 7 [(5) The provisions of this Chapter shall not apply where the preferential issue of specified securities is made to the lenders pursuant to conversion of their debt, as part of a debt restructuring scheme implemented in accordance with the guidelines specified by the Reserve Bank of India, subject to the following conditions: (a) the guidelines for determining the conversion price have been specified by the Reserve Bank of India in accordance with which the conversion price shall be determined and which shall be in compliance with the applicable provisions of the Companies Act, 2013; (b) the conversion price shall be certified by two independent qualified valuers, and for this purpose valuer shall be a person who is registered under section 247 of the Companies Act, 2013 and the relevant Rules framed thereunder: Provided that till such date on which section 247 of the Companies Act, 2013 and the relevant Rules come into force, valuer shall mean an independent merchant banker registered with the Board or an independent chartered accountant in practice having a minimum experience of ten years; (c) specified securities so allotted shall be locked-in for a period of one year from the date of their allotment: Provided that for the purpose of transferring the control, the lenders may transfer the specified securities allotted to them before completion of the lock-in period subject to continuation of the lock-in on such securities for the remaining period, with the transferee; (d) the lock-in of equity shares allotted pursuant to conversion of convertible securities issued on preferential basis shall be reduced to the extent the convertible securities have already been locked-in; (e) the applicable provisions of the Companies Act, 2013 are complied with, including the requirement of special resolution.] 8 [(6) The provisions of this Chapter shall not apply where the preferential issue, if any, of specified securities is made to person(s) at the time of lenders selling their holding of specified securities or enforcing change in ownership in favour of such person(s) pursuant to a debt restructuring scheme implemented in accordance with the guidelines specified by the Reserve Bank of India, subject to the following conditions: (a) the guidelines for determining the issue price have been specified by the Reserve Bank of India in accordance with which the issue price shall be determined and which shall be in compliance with the applicable provisions of the Companies Act, 2013; (b) the issue price shall be certified by two independent qualified valuers, and for this purpose valuer shall be a person who is registered under section 247 of the Companies Act, 2013 and the relevant Rules framed thereunder: Provided that till such date on which section 247 of the Companies Act, 2013 and the relevant Rules come into force, valuer shall mean an independent merchant banker registered with the Board or an independent chartered accountant in practice having a minimum experience of ten years; (c) the specified securities so allotted shall be locked-in for a period of at least three years from the date of their allotment; (d) the lock-in of equity shares allotted pursuant to conversion of convertible securities issued on preferential basis shall be reduced to the extent the convertible securities have already been locked-in; (e) a special resolution has been passed by shareholders of the issuer before the preferential issue; (f) the issuer shall, in addition to the disclosures required under the Companies Act, 2013 or any other applicable law, disclose the following information pertaining to the proposed allottee(s) in the explanatory statement to the notice for the general meeting proposed for passing the special resolution as stipulated at clause (e) of this sub-regulation: a. the identity including that of the natural persons who are the ultimate beneficial owners of the shares proposed to be allotted and/ or who ultimately control the proposed allottee(s); b. the business model; c. a statement on growth of business over the period of time; d. summary of audited financials of previous three financial years; e. track record in turning around companies, if any; f. the proposed roadmap for effecting turnaround of the issuer. (g) the applicable provisions of the Companies Act, 2013 are complied with.] ******** 1 Inserted by the SEBI (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2017, w.e.f. 15.02.2017. 2 Inserted by the SEBI (Issue of Capital and Disclosure Requirements) (Fourth Amendment) Regulations, 2017, w.e.f. 14.8.2017. 3 Substituted by SEBI (Issue of Capital and Disclosure Requirements) (Third Amendment) Regulations, 2010, w.e.f. 13.04.2010. Prior to its substitution, proviso read as under: Provided that the lock-in provisions of this Chapter shall apply to such preferential issue of equity shares. 4 Inserted by the SEBI (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2017, w.e.f. 15.02.2017. 5 Inserted by SEBI (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2012, w.e.f. 07.02.2012 6 Inserted by the SEBI (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2017, w.e.f., 31.5.2017. 7 Substituted by the SEBI (Issue of Capital and Disclosure Requirements) (Fourth Amendment) Regulations, 2017, w.e.f. 14.8.2017. Prior to the substitution, sub-regulation (5), inserted by the SEBI (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2015, w.e.f. 05.05.2015, read as follows: (5) Conversion of debt into equity under strategic debt restructuring scheme- The provisions of this Chapter shall not apply where the preferential issue of equity shares is made to the consortium of banks and financial institutions pursuant to conversion of their debt, as part of the strategic debt restructuring scheme in accordance with the guidelines specified by the Reserve Bank of India, subject to the following conditions: (a) conversion price shall be determined in accordance with the guidelines specified by the Reserve Bank of India for strategic debt restructuring scheme, which shall not be less than the face value of the equity shares; (b) conversion price shall be certified by two independent qualified valuers, and for this purpose 'valuer' shall have the same meaning as assigned to it under clause (r) of sub regulation (1) of regulation 2 of the Securities and Exchange Board of India (Issue of Sweat Equity) Regulations, 2002; (c) equity shares so allotted shall be locked in for a period of one year from the date of trading approval: Provided that for the purposes of transferring the control, the consortium of banks and financial institutions may transfer their shareholding to an entity before completion of the lock in period subject to continuation of the lock in on such shares for the remaining period with the transferee; (d) applicable provisions of Companies Act, 2013 are complied with, including the requirement of special resolution. 8 Substituted by the SEBI (Issue of Capital and Disclosure Requirements) (Fourth Amendment) Regulations, 2017, w.e.f. 14.8.2017. Prior to the substitution, sub-regulation (6), read as follows: (6) The provisions of this Chapter shall not apply when any other secured lenders opt to join the strategic debt restructuring scheme in accordance with the guidelines specified by the Reserve Bank of India and convert their debt into equity share in accordance with sub regulation (5).