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S. No. Particulars Pg. No.

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03 •• 35th National Convention of Company Secretaries

MCA

22.. MMCCAA UUppddaatteess

06 • New version of Form CAR (Cost Audit Report) & Form 1A

• Constitution of the Benches of the CLB 07

33.. CCaappiittaall MMaarrkkeett UUppddaatteess

• Views/Suggestions invited on 'Report and Recommendations of the Group on Transmission of Shares'

• Proposal on waiver of load for direct applications in Mutual Fund schemes

• Guidelines for Overseas Investments by Venture Capital Funds

• SEBI introduces Fast Track Issuance of Securities

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'ICSI House', 22 Institutional Area, Lodi Road, New Delhi-110003, India. Phone-(011) 41504444, 24617321-24, Fax-(011)24626727, Email - [email protected]

The Institute of Company Secretaries o f Ind ia IN PURSUIT OF PROFESSIONAL EXCELLENCE

S ta tu to r y b od y u nd er an A c t o f Pa r l i a m en t

Disclaimer: - CS Update contains government notifications, case laws and contributions received from the members. Due care and diligence is taken in compilation of the CS Update. The Institute does not own the responsibility for any loss or damage resulting from any action taken on the basis of the contents of the CS Update. Anyone wishing to act on the basis of the contents of the CS Update is advised to do so after seeking proper professional advice.

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FC

MCA

• 35 National Convention of Company Secretariesth

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35th National Convention of Company Secretaries Theme: “Excellence Through Business Value Addition”

Dates: September 20-22, 2007 Venue: B M Birla Auditorium, Statue Circle, Jaipur

Sub Themes

1. Championing Business Excellence 2. Corporate Compliance Management 3. Calibrating Competence for Professional Excellence 4. Global Dimensions of Business Value

Delegate Fee♣

Rs. Members of ICSI/ICAI/ICWAI 3400 Non-Members 3900 Company Secretary in Practice 2900 Senior Members (60 yrs.& above) 2900 Members admitted after 31.12.2004 2900 Students, ICSI 2400 Accompanying Spouse 2400 Licentiates, ICSI 2900 Foreign Delegates US$150

PROGRAMME CREDIT HOURS Members of the Institute will be entitled to ten programme credit hours. Students attending National Convention would be deemed to have complied with the requirement of attending 25 hours of Academic Development Programmes.

SPECIAL TRAVEL ARRANGEMENTS FROM NEW DELHI A/C Luxury Coach Buses from New Delhi to Jaipur and back.

Date and Time of Departure (From New

Delhi) Date and Time of Return (From

Jaipur) 20th September, 2007 at 5.30 A.M 22nd September, 2007 at 5.00 P.M. Starting Point ICSI House, 22, Institutional Area, Lodi Road, New Delhi - 110 003

Starting Point Birla Auditorium, Statue Circle, Jaipur, Rajasthan.

Programme for Thursday, September 20, 2007 Registration of Delegates 11.00 AM onwards INAUGURAL SESSION 02.00 PM to 4.30 PM TEA 4.30 PM TO 5.15 PM SPECIAL SESSION I 05.15 PM to 6.30 PM Cultural Programme and Dinner at Sisodia Garden 07.30 PM onwards

♣ The registration form duly completed along with a crossed demand draft drawn in favour of the “The Institute of Company Secretaries of India” payable at New Delhi may please be sent to the Secretary & CEO, ‘The Institute of Company Secretaries of India’, ICSI House, 22 Institutional Area, Lodi Road, New Delhi-110003.


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Programme for Friday, September 21, 2007 FIRST TECHNICAL SESSION Championing Business Excellence

• Expectations of Large and SM enterprises Learning Strategies

• Stakeholder Relation Dynamics for Good Corporate Governance

09.30 AM to 11.30 AM

TEA 11.30 AM to 12.00 Noon

SECOND TECHNICAL SESSION Corporate Compliance Management

• Systems Approach to Compliance Management • Capturing the Spirit of Compliance Management

12:00 Noon to 2:00 PM

LUNCH 2.00 PM to 3.00 PM THIRD TECHNICAL SESSION Calibrating Competence for Professional Excellence

• Restructuring Professional Firms for Growth • Developing New Areas for Domestic and International

Practice [BPO;KPO;LPO]

3:00 PM to 5.00 PM

YOUNG PARLIAMENTARIANS SESSION • Professional India – Vision 2020 5.00 PM to 6.30 PM

TEA 6.30 PM to 7.00 PM Cultural Programme and Dinner at Choki Dhani 7.30 PM onwards

Programme For Saturday, September 22, 2007 OPEN HOUSE SESSION (For Members of The ICSI only) 9.00 AM to 10.30 AM

TEA 10.30 AM to 11.00 AM

SPECIAL SESSION II (International) 11.00 AM to 12.00 Noon

FOURTH TECHNICAL SESSION Global Dimensions of Business Value

• Developing Expertise in Cross-border Acquisitions & Alliances

• Sustainability, Ethics and Corporate Governance

12.00 Noon to 2.00 PM

LUNCH 2.00 PM TO 3.00 PM VALEDICTORY SESSION 3.00 PM to 4.30 PM TEA 4.30 PM

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MC

• New version of Form CAR (Cost Audit Report) & Form 1A • Constitution of the Benches of the CLB

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New version of Form CAR (Cost Audit Report) & Form 1A New version of Form CAR (Cost Audit Report) & Form 1A is available on the MCA Portal, effective August 18, 2007. All Stakeholders are requested to use new version as the previous version of these forms has been discontinued.

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File No. 10/43/2005-CLB

GOVERNMENT OF INDIA COMPANY LAW BOARD

Shastri Bhawan, 5th Floor, A-Wing, Dr. Rajendra Prasad Road, New Delhi – 110 001.

Dated: 21/8/2007

O R D E R

In exercise of the powers conferred by Sub-Section 4(B) of Section 10(E) of the Companies Act, 1956 (1 of 1956) read with Regulation 4 of Company Law Board Regulation, 1991, amended from time to time and in supersession of all earlier orders, the Company Law Board hereby constitutes the following Benches for the purpose of exercising and discharging its powers and functions in the manner specified below:- (a) Matters falling under Sections 235, 237, 247, 248, 250, 388(b), 408 and 409 and matters falling under Chapter VI of Part VI of the Companies Act, 1956 and all other matters incidental thereto, shall be dealt with by Principal Bench at Delhi consisting of any one of the following:-

1. Shri S. Balasubramanian, Chairman 2. Shri K.K. Balu, Vice Chairman 3. Smt. Vimla Yadav, Member

(b) Matters falling under section 235, 237, 247, 248, 250, 408 & 409 and

matter falling under Chapter VI of Part VI of the Companies Act, 1956 and all other matter incidental thereto, shall be dealt with by Additional Principal Bench at Chennai consisting of any one of the following:

1. Shri S. Balasubramanian, Chairman 2. Shri K.K. Balu, Vice Chairman

(c) The jurisdiction of the Addl. Principal Bench, Chennai shall be the States of Andhra Pradesh, Karnataka, Kerala, Tamil Nadu and Union Territories of Pondicherry and Lakshadeep Island.


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(e) Other matters falling under Companies Act, 1956 and all other matters incidental thereto including interlocutory application connected with matters in (a) and (b) above and also matters under section 45QA of the Reserve Bank of India Act, 1934 shall be dealt with by a single Member, sitting at the Regional Benches from amongst the Members specified in sub para (a) above. 2. The Principal Bench may, at its discretion, hold its sitting at any place in the territory of India. 3. Any Bench may, if deemed necessary, instead of disposing the case by itself, refer the matter to the Principal Bench for joint consultation and disposal.

4. This Order shall come into force with immediate effect.

By order of the Company Law Board ( Nimmi Dhar ) Under Secretary to Government of India Tele: 23383662

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• Views/Suggestions invited on 'Report and Recommendations of the Group on Transmission of Shares'

• Proposal on waiver of load for direct applications in Mutual Fund schemes

• Guidelines for Overseas Investments by Venture Capital Funds

• SEBI introduces Fast Track Issuance of Securities

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Views/Suggestions invited on 'Report and Recommendations of the Group on Transmission of Shares' SEBI has placed the "'Report and Recommendations of the Group on Transmission of Shares” for public comments on its website.

The Institute seeks your views and suggestions on the Report and would appreciate to receive the same at [email protected] or [email protected] by September 03, 2007 so as to finalise the views of the Institute for sending to SEBI.


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Report and recommendations of the Group on “Transmission of Shares”

Group: R.K. Nair, Chairman A.P. Bakliwal, Member S.V.M.D. Rao, Member Ananta Barua, Member Jeevan Sonparote, Member Secretary


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ACKNOWLEDGEMENT

The intent of this report is to formulate and to lay down a comprehensive policy framework which shall address the issue of transmission of shares by simplifying the stringent and complex procedure in relation to transmission of shares and also to standardise the divergent practices followed by the listed companies. The objective is to alleviate the hardships caused to the investors. The Group acknowledges the inputs from various representatives of Investors’ Associations, RAIN , R & STAs like Intime Spectrum Services Ltd ., Sharepro Services (I) Pvt. Ltd ., Karvy Computershare Pvt. Ltd . The Group also recognizes the valuable inputs from CDSL and NSDL. The Group also extends thanks to representatives of HDFC and m e mbers of the ICSI Technical Committee on codification of Secretarial Standard on Transmission (SS-6) for their valuable inputs. The Group acknowledges the efforts of Shri Vineet Yash, Manager, OIAE for the logistical, coordination and drafting work in preparation of this Report.


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Index EXECUTIVE SUMMARY BACKGROUND MEETINGS AND DELIBERATIONS OF THE GROUP INTRODUCTION EXISTING PRACTICE AND THE HARDSHIPS FACED BY INVESTORS PROCEDURE FOLLOWEDIN PHYSICAL SHARES General observations PROCEDURE FOLLOWED IN DEPOSITORY / DEMAT SYSTEM Single Holder A. NSDL B. CDSL Joint Holder AN ALYSIS AND DISCUSSION Threshold and standardisation of documents Physical environment Dematerialised environment Joint holders in Demat Mode Nomination Facility Attestation of documents Time Frame RECOMMENDATIONS


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Abbreviations AOA Articles of Associations BO Beneficial Owner CDSL Central Depository Services (India) Limited DP Depository Participant HLL Hindustan Lever Limited HDFC Ltd . Housing Development and Finance Company Limited IA Investors’ Association ICSI Institute of Company Secretaries of India KYC Know Your Client NSDL National Securities Depository Limited NOC No Objection Certificate OIAE Office of Investor Assistance and Education PAN Permanent Account Number POA Power of Attorney RAIN Registrars’ Association of India R & STA Registrar and Share Transfer Agent SEBI Securities and Exchange Board of India TRF Transmission Request Form


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EXECUTIVE SUMMARY 1. Transmission means devolution of title to shares1 otherwise than by transfer, for example, devolution by death, succession, inheritance, bankruptcy, marriage, etc. Transmission is different vis-à-vis Transfer as in Transmission a person acquires an interest in the property by operation of law, such as by right of inheritance or succession, whereas, Transfer is effected by act (free volition) of the parties. In transmission case, where title to shares are passed by operation of law, the beneficiary need not carry out further formalities such as duly executed stamped instrument of transfer as stipulated in Section 108 of the Companies Act, 1956. The Company concerned also cannot insist on such formalities. 2. Inspite of the legislative intent to simplify the procedure of Transmission of Shares, companies have over a period of time evolved varying and diverse documentary compliances on the part of the legal representative of the deceased security holder. 3. To address this issue and to evolve a uniform procedure and to alleviate and redress complaints received by SEBI in relation to ‘Transmission of Shares’, Chairman, SEBI constituted a Group headed by Shri R K Nair, ED, SEBI, with three objectives: (a) Examining the procedures followed by companies in relation to Transmission, (b) Exploring the implementation of the concept of ‘Either or Survivor’in case of shares held in dematerialized mode and (c) Suggesting uniform norms and procedures to alleviate the sufferings of investors. 4. To get a balanced and complete picture of the nuances and intricacies of the existing procedure and to recommend ways to simplify the same, the Group invited representatives from the following organizations: (a) Registrars’ Association of India (RAIN ), (b ) Registrar & Share Transfer Agents (R & STAs), (c) Public Sector and Private Sector Bank, (d ) NSDL, (e) CDSL, (f) Investors’ Association (IA) recognized by SEBI and (g ) ICSI member of Technical Committee on Transmission (SS-6) 5. On analysis of the information availab le in terms of the present procedure, it was observed that hardships of legal representatives of deceased are mainly:

Ambiguity about procedures, Cumbersome documentation and Lack of uniformity in the procedures.

6. The Group discussed and deliberated on the issues and after 5 meetings narrowed down on the core procedural impediments that contribute to delay in the process of Transmission of Shares. The following core issues emerged: a) Conservative approach adopted by the Companies / Directors in exercising the discretion vested b y the Articles of Association (AOA), b ) Insistence by companies to obtain probate of will by beneficiary and lack of clear understanding of the legal provisions relating to Transmission of shares with respect to laws governing the will, c) Lack of awareness of nomination facility and the need to popularize nomination facility through proper investors’ education, and d) The need to involve R & STAs, Depositories, DPs and Companies in creating awareness about nomination facility by launching a special drive.

1 Shares shall have the same meaning as per the definition of ‘Securities’ under section 2 (h) of Securities Contracts (Regulation) Act, 1956.


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BACKGROUND Section 11 (1) of SEBI Act, 1992 states, ‘Subject to the provisions of this Act, it shall be the duty of the Board to protect the interest of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit.’ To meet the objectives of Investor Protection and Market Development as enshrined in the preamble of SEBI Act, 1992, SEBI and recognized IAs have been working together. Office of Investor Assistance and Education (OIAE) is a single point interface to redress investor grievances. Quarterly meeting of recognized IAs are organized to deliberate on problems faced by investors, particularly retail and small. Investors’ Associations are encouraged to ventilate Investors’ issues to alleviate the problems / hardships. In the meeting of IAs held on 11.06.2007 instances of hardships faced by investors in relation to ‘Transmission of Shares’ were discussed. Three key issues emerged:

Ambiguity about procedures Cumbersome documentation Lack of uniformity in the procedures

Chairman, SEBI decided to constitute a Group to suggest suitable measures to address issues relating to difficulties faced by the investors while dealing with Transmission of shares, both in physical and dematerialized mode. Shri R.K. Nair, Executive Director, SEBI was nominated Chairman of the Group and Shri A P Bakliwal, President, Bombay Shareholders Association, Shri S.V.M.D. Rao, Chief General Manager, SEBI and Shri Ananta Barua, Legal Adviser, SEBI as other members with Shri Jeevan Sonparote, Deputy General Manager, SEBI as the Member Secretary. The terms of reference were: 1. To examine various procedures followed by the companies and registrar and share transfer agents for transmission of physical shares 2. To explore the implementation of the concept of ‘Either or Survivor’ in depository system. 3. To suggest uniform norms and procedures relating to the transmission of physical shares, specifically with reference to documentation required for transmission. The Group, for the above purpose, was empowered to call information from the issuer companies and R & STAs and submit its report within a period of two months. MEETINGS AND DELIBERATIONS OF THE GROUP In the first meeting of the Group, a discussion paper was deliberated upon and inter alia specific issues were discussed about the problems faced by investors, legal provisions / issues involved and measures to simplify the procedure related to the Transmission of shares. In view of the nature of the issues involved, following persons were invited to the subsequent rounds of the deliberations:- a) Representatives of RAIN b) Atleast two R & STAs, two companies, one public and one private sector bank. c) The Members of the ICSI Technical committee that codified the draft code for transmission of shares,


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d) Representatives of NSDL and CDSL e) Office bearers of IAs recognized by SEBI To understand the problems faced by investors, at large, the Group also called information from a sample of 8 R & STA. R & STAs were asked to provide information in relation to 10 sample companies for which they act as R & STA detailing the divergent practices followed by the respective companies. The Group went through the various complaints received by SEBI over the period. Information was sought from NSDL and CDSL in relation to the issues faced by investors with respect to Transmission of shares held in dematerialized mode.

INTRODUCTION To transmit is defined as “2to cause to convey to another person or place”. Also “3to pass on a right or obligation to heirs or descendants”. and transmission is defined as the “action of transm itting orthe fact of being transmitted: conveyance from one person to another”. The word 'transmission' means devolution of title to shares otherwise than by transfer, for example, devolution by death, succession, inheritance, bankruptcy, marriage, etc. While transfer of shares is brought about by delivery of a proper instrument of transfer (viz, transfer deed) duly stamped and executed, transmission of shares is done by forwarding the necessary documents (such as a notarized copy of death certificate) to the company. On the death or lunacy of the original holder (single holder), his shares vest in his legal representative. On registration of transmission of shares, the person whose name is entered in the register of shareholders becomes the shareholder of the company and is entitled to all the rights and is subject to all the liabilities as were of the original shareholder. Legal provisions related to ‘Transfer by legal representative’ is contained in section 109 of the Companies Act 1956, Section 109 reads as, “A transfer of the share or other interest in a company of a deceased member thereof made by his lega lrepresentative shall, although the legal representative is not himself a member, be as valid as if he had been a member at the time of the execution of the instrument of transfer.” Section 109A deals with ‘Nomination of shares’ which provides for nomination by holder(s) of shares in respect of shares held by them. Cases wherein a nominee has been appointed, the shares should vest in the nominee on the death of the member(s). Section 109B deals specifically with transmission of shares. As per section 109B, on the death of the shareholder, the nominee has the option either to register himself as the holder of the shares of the deceased or to transfer the shares to any other person. The transferee (s) may not necessarily be the legal heirs of the deceased shareholder (s). Section 109B (1) states, “Any person who becomes a nominee by virtue of the provisions of section 109A, upon the prod uction of such evidence as may be required by the Board and subject as herein after provided, elect, either-… … … … … … … ..” 2 The Law Lexicon 3 www.dictionary.com


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From the above, it becomes evident that the provisions of the Companies Act do not specify the procedure to be followed by the companies for transmission and that the companies have the discretion to decide on the procedure as per their AOA and other relevant laws. The companies generally follow procedures as laid down in their AOA and such other requirements that safeguard the companies from the consequences of future litigation and these procedures differ from company to company.

EXISTING PRACTICE AND THE HARDSHIPS FACED BY INVESTORS Due to the fact that the Companies Act has not specifically mandated any set of documents which must be provided in relation to transmission, an attempt has been made to summarize the problems / difficulties faced b y investors. Problems faced by investors: 1. Small investors who have made will are not able to produce the probate of the will. Obtaining a probate requires the investor to approach a court and it also involves payment of fees / stamp duty. 2. While documents such as indemnity and affidavit can be produced without much difficulty, procuring other documents such as surety/ bank guarantee, no objection certificate (NOC) from all legal heirs (particularly when a registered will is available), and issuance of press advertisement may cause inconvenience to investors. 3. In case a shareholder who dies intestate (without executing a will), the applicant has to follow the cumbersome process as given below: a) The Application for issuance of succession certificate is to be made in the court, where the properties of the deceased are situated or where he / she normally resided, and depending on the value of the estate of the deceased, the matter goes to the competent court on the basis of ‘pecuniary jurisdiction’. b) Application is to be made to the court with the names of all other heirs of the late relative as the respondents in the matter. Normally a newspaper notice is also issued apart from mandatory notice to the respondents. c) Upon the expiry of the time period (normally 1 and a half months) from the date of publication of the notice after the respondents have given their no objection, the court passes the orders for issuance of the Succession Certificate, for which the applicant has to submit Judicial Stamp papers of sufficient amount (as per the prescribed court fees structure) in the court. d ) It roughly takes ab out 3-6 months from date of filing to receive the certificate. 4. The procedures brought out above, come at a cost to the investor. In some cases the cost of legal requirements and newspaper advertisement could exceed the value of the shares to be transmitted. 5. Variation is also observed in the procedure followed by different companies, particularly related to obtaining NOC from legal heirs, Surety/ Bank Guarantee and issue of press / newspaper advertisement. 6. The protracted procedures also cause opportunity loss to the investors. 7. Some of the procedures though not mandated by law are in place basically as safeguard to the companies so that they do not face any claims / counter claims at a later stage. Further, in respect of procedures adopted by some of the sample companies, it has been observed that some have prescribed, “the Company at its discretion / under special circumstances waive requirements… … ” without specifying as to what are those special cases / circumstances?


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PROCEDURE FOLLOWED IN PHYSICAL SHARES Various companies listed with the Stock Exchanges have been following divergent practices in relation to the transmission of shares to the legal heir / nominee of the shareholder in case of the death of the original shareholder. Practices followed by a sample of companies for the “Transmission of Shares” were obtained from web sites of companies. The following companies were part of the sample – HLL, RIL, REL, Jet Airways, SBI, ITC, Tata companies, HDFC, ICI Ltd . General observations It was ob served that there is no problem in case the heirs of the deceased present a probate of a will. The problem lies in the divergent practices followed by companies in cases where there is no will left by the deceased or even if the will is there but there is no probate of the will. It is observed from the sample study that two different approaches are in use among the companies / R &SATs, which are as follows: 1. In the absence of a probate of will, some companies ask for a ‘succession certificate’ or a ‘letter of administration’ along with a request letter and transmission form to process the transmission. Some of the companies in the select sample do not explain the procedure to be followed where there is a will which is not probated or where there is no will and no succession certificate. 2. Certain other companies from the sample list have provided for an alternate procedure in case of absence of a probate of will / letter of administration / succession certificate. The alternate procedure is required even if there is a registered will. Some companies have evolved the alternate mechanism that apply only upto a threshold. In cases where the value / number of shares involved is lower than a certain threshold limit, companies seek alternate documents instead of insisting on probate of will / succession certificate which may be cumbersome and cost ineffective to obtain. As there is no standardization of the procedures, the documents sought differ from company to company. The documents sought by the sample companies are listed below: - (a) Request letter (all companies) (b) Copy of death certificate (all companies) (c) Affidavit affirming the name of legal heirs / Affidavit sworn in by the claimants (all companies) (d) Indemnity agreeing to indemnify the company against future claims that may be made on the company (all companies) (e) NOC from other heirs in favour of person claiming the title to shares (most companies – whereas one company in the sample study does not ask for this). (f) Bank Guarantee in favour of the Company for the market value of the Shares for specified period. (only one company in the sample has this requirement) (g) Surety Form seeking surety from one or two persons covering the value of Shares involved. The surety form often requires financial details to be filled in by the surety (only two g roup companies from the sample study have this requirement whereas others do not require surety). The surety form mostly requires financial details to be provided such as movable / immovable property and PAN no. etc. (h) Press Advertisement informing the public about the transmission request made to the Company (This requirement is there only for one company).


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PROCEDURE FOLLOWED IN DEPOSITORY / DEMAT SYSTEM The procedures followed for transmission of shares in the depository systems is also cumbersome and is amplified in the case of joint holding. The procedures involved are outlined below:- Single Holder A. NSDL: NSDL requires that the legal heir(s) or the legal representative(s) of the deceased person submit an instruction called the Transmission Request Form (TRF) to the Depository Participant (DP) along with the following documents: a. A copy of the death certificate duly notarized b . A copy of the Succession certificate duly notarized or an order of a court of competent jurisdiction where the deceased has not left a will; or c. A copy of the probate or Letter of Administration duly notarized. If the legal heir(s) or the legal representative(s) express inability to produce either of the documents mentioned under (b) and (c) ab ove, and the market value of the shares held in each account of the deceased as on the date of application for transmission does not exceed Rs. 1 lakh, then the DP will process the transmission request on the basis of the following documents: a. Transmission form; b. Copy of the death certificate duly notarized; c. Letter of Indemnity duly supported by a guarantee of an independent Surety acceptable to the Depositories, made on appropriate non judicial Stamp paper; d. An Affidavit made on appropriate non judicial stamp paper; and e. NOC(s) from all the legal heir(s) who do not object to such transmission. The procedure followed by NSDL is similar to that followed by companies for physical shares, and the alternate procedure is made available for shares of value less than Rs.1 lakh. The surety form sought by NSDL also seeks financial details of movable / immovable property held by the surety, as well as details such as PAN no. etc. B. CDSL: CDSL requires that the claimant should submit TRF alongwith the following documents to the concerned DP: 1. In case of the death of the sole holder wherein the holder has appointed a nominee a. N otarized copy of the death certificate; 2. In case of the death of the sole holder wherein the holder has not appointed a nominee a. Notarized copy of the death certificate; b. Any of the below mentioned documents:

i. Succession certificate ii. Copy of will and probate iii. Letter of administration

The DP after ensuring thatthe application is genuine will transfer the shares to the account of the claimant. In case the market value of the shares do not exceed Rs. 1 lakh, the Board of Directors of CDSL, even in the absence of the documents specified


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at (b) above, has the discretion to transmit the shares to the heir / legal representative on such terms and conditions as it may specify. Joint Holder The procedure of transmission in case of demat account operated in joint names is similar to that followed in case of transmission of shares in physical form. In case the deceased was one of the joint holders, then the surviving holders have to request the DP vide a form called TRF along with a copy of notarized death certificate to transmit the shares lying in the account of the deceased to the account of the surviving holders. For this purpose, the surviving joint holder(s) necessarily have to open a new Beneficial Owner (BO) account with their name in the same sequence in which the names appear in the joint account to be closed. There have been suggestions from various quarters of investors that demat account should be treated like a bank account and the procedure followed by banks for such accounts should be replicated in the depository accounts. Some of the suggestions were a. Operation of BO Account on ‘Either or Survivor’ basis on the similar lines as is done in case of Bank Accounts; and b . Continuation with the same account instead of closure of the account in case one of the account holders dies. As per article 25(1) of Schedule I to the Companies Act, 1956, the surviving joint holder is entitled to the shares in case of death of a joint shareholder. The surviving joint holder(s) has a choice to get himself / themselves registered as the shareholder(s) or to transfer the shares as per Article 26. Where he / they elect to retain the shares, he / they are required to be registered as the sole shareholder / remaining joint holders. In such a case, the new holder is allotted a new folio number, i.e. it is treated as a different folio from that of the original joint holder. The practice as prevalent in case of physical shares has been replicated in the dematerialized environment. At present, if one of the joint holders dies, the surviving joint holder necessarily has to open one more BO account and has to transfer the shares from the existing account.

ANALYSIS AND DISCUSSION The Group deliberated on the aforesaid issues and felt that the existing rigrous procedures of companies and R & STAs are depriving the investors the fruits of their investment decision. The group felt that there is an imperative need to simplify the procedure involved in relation to the Transmission of shares, particularly in view of the fact that investments in shares are made to provide financial assistance in times of need. Threshold and standardisation of documents Physical environment: Transmission of shares held in physical form can be categories into two broad subcategories. CASE A: Cases wherein the shares are held in single name in varied companies and the Estate of the deceased is quite large. In such cases, the heirs of the deceased obtain succession certificate, probate of the will or letter of administration as the case may be. As the succession certificate /


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probate of will / letter of administration is already there in respect of the property (including the shares) bequeathed, cases falling under these categories pose no major problem and the turn around time starting with lodgement of claim form till the dispatch of certificates after effecting transmission ranges from 3 to 4 weeks. CASE B: Cases wherein value of the holdings of the deceased shareholder is quite small compared to the cost of the legal representation in obtaining succession certificate, probate of the will or letter of administration as the case may b e. It has been observed that the majority of the cases fall under this category and should be the focus area for significant improvement / simplification of the procedure. This would reduce the hardships faced by investors. The Board of Directors of the respective companies are normally vested with significant powers and discretion by the AOA in relation to the transmission without production of legal documents. Further, some companies have prescribed threshold limits in terms of value of the shares exceeding which the company requires more stringent procedure in relation to transmission as an investors’ friendly measure. This alleviates the undue hardships caused to the investors. Divergent views prevail with regard to probate of will. Under Section 57 and Section 213 of the Indian Succession Act 1925, requirement of probate arises only where the properties are situated at Mumbai, Chennai and West Bengal. Thus it would follow that requiring the heirs to obtain a probate at places other than Mumbai, Chennai and West Bengal is unjustified. This needs to b e taken into account by the companies. Again the provisions of the Indian Succession Act do not apply to Mohammedans and Christians (i.e. Communities other than Hindus, Buddhists, Sikhs and Jains). Therefore, companies can adopt a pro-active policy while dealing with these two communities. Despite the provisions of the Indian Succession Act, most companies are insisting on the probate of the will by citing the requirement under the AOA of the respective companies, which requires that such probate should be obtained. The Group felt that a threshold limit both in term of number of shares and in terms of the market value of the shares, should be fixed and upto the threshold limit, the company should not seek legal documents in the form of succession certificate / probate of will/ letter of administration. The group felt that the threshold limit of a holding of 200 shares or a value of Rs 1 lakh, which ever is higher shall be appropriate. Upto this threshold the companies shall transmit the title to the shares only with the following documents:- i. Affidavit – to the effect of the claim of legal ownership to the shares, ii. Deed of Indemnity – indemnifying the company along with Surety and iii. NOC from other legal heir(s), wherever applicable, along with Claim Form / TRF, As there is no prescribed format in relation to the documents to be furnished along with TRF, there is a need to formalize the documents and their formats. The Group observed that some of the companies had more liberal thresholds. The intent of the Group is not to interfere with such thresholds which are more than the one stated above. The Group thus recommends that if any of the companies are having a more liberal threshold they shall continue to do so, and companies desiring to set liberal threshold should be able to do so. The threshold specified herein be the basic minimum that a company shall adhere to.


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Dematerialised environment While the above threshold would apply to the holding in physical, there cannot be a mirror application of this concept in the depository environment for all holding in the various companies. Threshold limit in case of shares held in physical mode is applicable company-wise and only if the values of the shares in respective companies exceed the threshold limit, the claimant / heir may be required to submit succession certificate / probate of will / letter of administration. However, in case of shares held in dematerialized mode, in a single BO account, the account holder can hold shares of several companies and fixing a threshold limit company-wise would not b e practically feasible as the holder can hold the shares in a particular BO account which may run in crores. Further, in case of BO account, the documents which the claimant of the deceased needs to submit for transmission is account-wise and not company-wise and this saves the claimant from the undue hardship of approaching the respective companies whose shares are to be transmitted. Group felt that the threshold as specified in shares held in physical mode shall not apply in case of shares held in dematerialized mode. However, the existing threshold of Rs. 1 lakh in value as provided in the byelaws of the Depositories shall continue to apply. Joint holders in Demat Mode In relation to BO account held in joint names, as per the existing practice, when an account holder dies, the surviving holders have to make an application to the DP, along with fresh set of documents (as required in case of opening of a new account), to open a new account in the name of the surviving member(s), appearing in the same order, as in case of original account. This is time consuming and tantamount to duplication of documents, which are already in possession of DP. Thoug h, in relation to the automatic opening of a new BO account on the basis of the existing documents, Depositories expressed their concern in the form of possibility of change of name / address, chang e in residential status, updating of signature, changes in appearance due to age, medical disabilities etc. and the same may need to be incorporated in the records. The Group agreed that the concerns were genuine but felt that the opening of the new BO account can be on the basis of the existing documents already in the possession of DP(s), except in case of updation of the documents as per Know Your Client (KYC) norms, and any other additional documents for transmission. For this purpose Depositories shall make suitable changes in their bye-laws/ business rules/ operational instructions, etc. As regards the scenario for operation of the account on ‘Either Basis’, it was informed that in cases of accounts held in joint names, the holder(s) in any way has the option of operation of the BO account on ‘Either Basis’ on production of duly executed Power of Attorney (POA) executed in favour of other account holder(s). The present system is working smoothly without any hassle or complaint. In view of this the Group did not feel the need for any further change in the existing provisions. Nomination Facility:


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Nomination is defined as an act of nominating a person to act on his behalf in his absence. In case of shares, any holder of the security at any time can nominate a person to whom the nominator’s interest in those shares shall vest in the event of the death of the nominator. The nomination once made can be changed as many times as desired by the nominator. Section 109A of the Companies Act talks about ‘Nomination of Shares’. Nomination is required to be made in the prescribed manner, i.e., in Form 2B [prescribed under rule 4CCC/5D of the Companies (Central Government’s) General Rules & Forms, 1956]. Non individuals including a society, trust, body corporate, partnership, karta of HUF and holder of POA cannot make a nomination. As per Section 109A (3) of the Companies Act, a nomination made as per the provisions of the Act overrides anything contained in any other law for the time being in force, including any law of succession or will or any other testamentary law, including anything contrary contained in the AOA of the company. The investor can easily save their legal heirs from the legal hassles and the rigours of transmission of shares by appointing a nominee in the prescribed form. In the absence of nomination, the company needs to transmit the shares to the person(s) who as per law has the legal right to the shares. This forces the companies to require adequate documentation from the legal heirs to prove their right to ownership of the shares. This is a piquant situation for the company. If the company does not do its due diligence at this stage, the company may be dragged into legal wrangle in case of counter disputes regarding the right to ownership. This casts the onerous responsibility on the company and the directors to ensure that all rights to ownership of shares are properly scrutinized so as to avoid any future litigation on this count. Nomination is a very effective remedy to the situation. Once a shareholder appoints a nominee, then as per the law, the company’s liability towards the event stands discharged to the extent that it has transmitted the shares to the nominee appointed by the shareholder. It is then the nominee’s responsibility to dispose of the shares or otherwise to the legal heirs. The intention of legislature in inserting specific provisions related to nomination facility in the Companies Act is to see that the company is discharged in relation to the impugned shares, in case the same is transmitted to the nominee and in case of dispute, the matter could be settled inter se the nominee and the disputing legal heirs. Many investors are not aware of the nomination facility and its benefits; hence do not avail of this facility. Thus the issue is more of creating / generating awareness amongst the investors about the benefits of the facility provided in law. In fact this fact was fairly acknowledged way back in 1999, which is evident in Press Release dated July 23, 1999 issued by the Department of Company Affairs, the text of which is reproduced below:- “Under the Companies (Amendment) Act, 1999, the shareholders have been allowed to nominate a person for their shares, debentures and deposits. The form in which the nomination has to be filed has been notified by the Department of company Affairs under the amended Companies Act. Earlier, holders of shares and debentures in a company did not enjoy the nomination facility for shares, debentures and deposits, which caused hardships to them. They were required to obtain a letter of succession from the competent authority. The facility of nomination is intended to make the company law in tune with the present day economic policies of liberalization and deregulation. Thisis also intended to


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promote investors confidence in capital market and to promote the climate for intercorporate investment in the country.” If properly utilised by the investors, this facility could prove to be a very useful remedy against all the problems faced by the investors while grappling with the issue related to the transmission of shares. Group felt that efforts need to b e made to make filling up of the nomination form mandatory, in a phased manner. However, if a person subscribing for the shares does not wish to file his nomination, he shall necessarily have to give a declaration to the said effect. The Group felt that this facility of nomination should also be propagated and encouraged by the Depositories. With a view to encourage such a practice, the group recommends that the Depositories embark on a special drive to create awareness about the benefits of the nomination facility. A special drive should be targeted at all its existing BOs who have not made nomination, by way of a special letter / communiqué drawing the attention of the BOs to avail of the nomination facility or to take on record the declaration of the BO that he does not want to nominate any body. This shall be apart from the normal communication channels that the Depositories have with its BOs for such messages. As regards new accounts opened on or after October 01, 2007, it shall be provided for at the account opening stage itself that the nomination is insisted upon. In case the person is not interested to nominate, then such a person would have to give a positive declaration to the effect that he does not want nomination for his account as under: ‘No, I do not want to nominate anyone on my behalf.’ As regards nomination, to place matters beyond doubt, it is recommended that provisions similar to sec 109A & 109B of the Companies Act 1956 should be inserted in Depositories Act so that a single nomination can be made for all shares held in the BO account. Attestation of documents During the deliberations, representations were received highlighting the insistence on the notarised copy of the documents for the various processes involved in the shares transactions, including transmission. The Group felt that if the basic purpose of notarization is to authenticate the documents, even attestation of the documents, under seal, by a gazetted officer should suffice. Time Frame To ensure that the transmission cases are dealt with in a time bound manner, a stipulation of time limit on similar lines as has been stated in Clause 12A (3) in relation to ‘Transfer’ by way of insertion / amendment to the said Clause of the Listing Agreements hould also be made for transmission. RECOMMENDATIONS In view of these discussions, the Group makes the following recommendations for simplifying the procedure in relation to ‘Transmission of Shares’ in the physical and dematerialized environment:- Physical Shares


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Standard documents A. Clause 7 of the Listing Agreement be amended to incorporate a clause specifying a threshold limit upto which the companies would insist on only the following documents in relation to transmission:- i. Affidavit – to the effect of the claim of legal ownership to the shares, ii. Deed of Indemnity – indemnifying the company along with Surety and iii. NOC from other legal heir(s), wherever applicable, along with Claim Form / TRF, B. The group recommends the standardization of these documents. These formats are enclosed as annexure to the report. Threshold C. The Group recommends that this threshold be fixed at holding of 200 shares or Rs. 1 lakh in value, whichever is higher. i. The prescribed threshold limit shall be the basic minimum limit to be adhered to by all the listed companies. The companies having higher threshold shall continue to do so, and also can set liberal threshold. ii. Thus in effect this threshold shall apply to companies who have not yet fixed any such threshold , and also those companies whose threshold is less than that specified above. Nomination D. To encourage nomination in physical shares, the Companies, IAs and SEBI shall embark on a special drive through the Investors’ Awareness Campaigns and the other education efforts to urge shareholders to utilize the nomination facility. Dematerialized shares Joint holders E. In relation to BO account held in joint names, DP(s) shall automatically open new account on an application by the surviving member(s) based on existing documents, except in case of updation of the documents required as per the Know Your Client norms, and additional documents such as notarized / attested copy of the death certificate of the deceased account holder(s), TRF, etc. The Depositories shall amend their byelaws / business rules, operational instructions to give effect to this. Nomination F. The nomination facility shall be encouraged by the Depositories. Depositories shall launch a special drive with the help of DPs and take pro-active steps to ensure that all its existing BO accounts are updated with nomination. The DPs shall specifically target its BOs which have not opted for nomination by way of special letter drawing the attention of the BOs to the benefits of nomination. This shall be apart from the normal communication channels that the Depositories / DPs have with its BOs for such messages. G. As regards new accounts opened on or after October 01, 2007, it shall b e provided for at the account opening stage itself that the nomination is insisted upon. In case the person is not interested to nominate, then such a person would have to give a positive declaration to the effect that he does not want nomination for his account as under: ‘No, I do not want to nominate anyone on my behalf.’


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H. As regards nomination, to place matters beyond doubt, it is recommended that provisions similar to sec 109A & 109B of the Companies Act 1956 should be inserted in Depositories Act so that a single nomination can be made for all shares held in the BO account. Time Frame I. To ensure that the transmission cases are dealt with in a time bound manner, a stipulation of time limit on similar lines as has been stated in Clause 12A (3) in relation to ‘Transfer’ by way of insertion / amendment to the said Clause of the Listing Agreement should also be made for transmission. Attestation J. Forthe purposes of attestation of the documents required by the companies and Depositories, the attestation of a Gazetted Officer, under its seal shall also suffice. _________________ ________________ Shri A.P. Bakliwal Shri S.V.M.D.Rao Member Member ________________ ____________________ Shri Ananta Barua Shri Jeevan Sonparote Member Member Secretary ____________________ Shri R.K. Nair Chairman


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ANNEXURE TO THE REPORT

Application for transmission of shares I /We, being the legal heir(s) in respect of the under mentioned shares of the company, held by the late Shri/ Smt _______________ hereby agree to accept and hold the said shares in my /our name(s) and also agree to be registered as Member(s) in the Register of Members of the Company, subject to the provisions of the Memorandum and Articles of Association of the Company.

Full name of the Company: Number and full description Number and class of the shares of the shares

……………… ……………… Distinctive N um b er

………..…….. Full name of the deceased shareholder Date of death Full name(s) of the legal heir(s) ……………………………………

Name or title of the ………………………………… document(s) produced in ………………………………… support of the claim to ………………………………… the shares to the deceased. …………………………………

I/We declare that information given above is true and correct to my/our knowledge and thatI/we am /are the only legal heir(s) in respect of the share of the company held by the deceased above named. SIGNED & DELIVERED by me/us this ........ day of ............20......... Signature of witness ................................... Signature(s) of the ................................... heir(s) ................................... Full name & address of ................................... Witness ...................................


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II Particulars of the legal heir(s)

Shri /Smt. Occupation Full Address Father’s /Husband’s Name

Or Kum …………… …………… … … … … … … … … … … … Entered in Register of Folio ……. Specimen signature(s) Transmission No. ……… of the legal heir(s) Approved ……………………………

…………………………… ……………………………

For …………….……… Secretary

Date … … ……….……. NOTES

1. Please fill in the details in English and in BLOCK letters. 2. Please fill in the details in legible hand or use a typewriter. 3. If the legal heir(s), is/are illiterate his/her/their thumb impression must be attested by a Magistrate or Notary Public under the seal of his office. 4. Particulars of each legal heir should be entered in the same order in which their names appear earlier and the application too should be signed in the same order. 5. Please see that all the share certificates/allotment letters, as the case may be, for all the shares of the company held by the deceased. LODGED BY ______________________ Full ______________________ Address ______________________


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III Affidavit by Legal Heirs of a Deceased Shareholder for

Transmission of Shares _____________________________________________________________________ (To be executed on non-judicial stamp paper of the requisite value as per the Stamp Act of the State in which executed) I/We -------------------- aged about ……….years (respectively), residing at … … do solemnly affirm and declare as follows: 1. That.................equity shares in…………..Ltd., bearing distinctive .........................numbers from … .to …... of the face value of Rs …….each are ...................registered in the name of Shri/Smt in the books of the company. 2. That Shri/Smt.... ………………..died intestate on……at......... 3. That the following are the only heir of the late Shri/Smt.......... (i) Shri/Smt.....aged residing at............ (ii) Shri/Smt aged residing at......... (iii) Shri/Smt aged residing at....... 4. That the late Shri/Smt …..….. has not sold, transferred, pledged or otherwise disposed of the said shares. 5. That the said shares were the separate and self-acquired property of the late Shri/Smt ...................... 6. That under the Hindu Succession Act. 1956, the person(s) mentioned in paragraph 3 above is/are entitled to inherit the aforesaid shares severally / jointly. 7. That the late Shri/Smt has left no other heir than those in paragraph 3 above and the person(s) mentioned is/are his only legal heir(s). 8. That I/we therefore request the company to transmit the aforesaid shares and register them in my/our name(s) in the books of the company without production of succession certificate or letters of administration. Dated this ......... Before me

Signature(s) of the Deponent(s)

Signature and Seal of Notary Public/Magistrate


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IV Indemnity Bond for Transmission of Shares

(on non-judicial stamp paper of appropriate value)

(*) (hereinafter called 'the company') (.) (hereinafter called 'the deceased ')

WHEREAS, ..........Equity Shares having distinctive numbers from .......to … … … … ...of the face value of Rs…….. each and on which Re/Rs …….. per share is/are paid comprised in the Share Certificate(s) No.(s).........................of ABC COMPANY UMITED having its Registered Office at...............................(*) are standing registered in the name of late Mr./Mrs./Miss........................in the Register of Members of the said company. WHEREAS, Mr./Mrs./Miss....................(.) died on.......leaving behind him /her the following:- (i) (ii) (iii) (iv) (v) AND WHEREAS, The above-mentioned shares were the separate and self-acquired property of the deceased. Under the Hindu Succession Act, 1956 the person/s mentioned hereinabove is/are the only heir/s of the deceased and entitled to inherit solely/ jointly the aforesaid shares. NOW, THEREFORE, I/We, the undersigned, request the company to transmit the aforesaid shares standing registered in the name of the deceased in my sole/our joint name(s) and also to pay to me/us any dividend payable on the aforesaid shares by the company without production of succession certificate or letters of administration or probate............................ In consideration of the company having agreed to transmit and register the aforesaid shares in my/our name(s) on my/our executing a bond in favour of the company I/we the applicant(s) here under for myself/ ourselves, my/our heirs, executors, administrators and assigns DO HEREBY jointly and severally covenant with the company, its successors and assigns that I/we and each of my/our heirs, executors, administrators and assigns will, upon the company transmitting and registering the said shares in my/our names and paying to me/us the dividends already due on the said shares, at all times save, defend, indemnify and keep indemnified the company, its successors and assigns, its estate and effects, and its directors, manager, secretary and shareholders and their heirs, executors and assigns from and against all actions, suits, proceedings, accounts, claims and demands whatsoever for or on account of the said shares or the dividends or any part thereof, or otherwise in connection with the same, and from and against all claims, damages, expenses and losses arising in any manner howsoever. In witness whereof I/We, the applicant(s) herein has/have signed and set my/our hand (s) this...........day of ........


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Witness No.1 Signature Name and address Name and address Signature (i) (ii) (iii) (iv) (v) Witness No.2 Name and address Signature Place.......................... Date ................................ WE, the undersigned certify that the above facts are true to the best of our knowledge and bind ourselves as sureties to make good all claims, charges, costs, damages, demands, expenses and losses which the said company, its successors and assigns, its estate and effects, and its directors, manager, secretary and shareholders may sustain, incur or be liable for in consequence of complying with the request contained above of the applicant(s) herein and the company and its successors. assigns, directors, manager, secretary and shareholders will be entitled to claim and realise all claims. charges, costs, damages. demands, expenses and losses from our persons or our properties, as the case may be. Witness 1 Signature Name & Address Signature Name & address Surety 1 Surety 2 Witness 2 Signature Name & address Place :........................... Date :..........................

VI Nomination Form

Form 2B (See rules 4CCC and 5D)

[to b e filled in by individual(s) applying singly or jointly]

I/We ……………………………………………. and … … ..……………………… and …………………………….. the holders of shares / Debentures / Deposit Receipt bearing number(s) ………………………………………… of M/s. ………………… wish to make a nomination and do hereby nominate the following person(s) in whom all rights of transfer and /or amount payable in respect of shares or debentures or deposits shall vest in the event of my or our death. Name(s) and Address(es) of Nominee(s) Name: ……………………………………………………………………………….. Address: …………………………………………………………………………….. …………………………………………………………………………………………


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Date of Birth* ………………………………………………………………………… *(to be furnished in case the nominee is a minor) **The Nominee is a minor whose guardian is … … … … … … … Name and Address ……………………………………………………………………………… (**To be deleted if not applicable) Signature ………………………………. Name ……………………………………………………………………………… Address: ……………………………………………………………………………… ………………………………………………………………………………………… Date: …………………………………… Signature……………………………….. Name…………………………………………………………………………………. Address: ……………………………………………………………………………… ………………………………………………………………………………………… Date: …………………………………… Signature……………………………….. Name……………………………………………………………………………… Address:………..……………………………………………………………………… ………………………………………………………………………………………… Date: …………………………………… Address, Name and Sig nature of witnesses:_____________________________________ Name and address Signature with date ____________________________ ____________________________________ 1. 2. ____________________________ ____________________________________ Instructions: 1. Nomination can be made by individuals only applying / holding shares/debentures on their own behalf singly or jointly. Non-individual including society, trust, body corporate, partnership firm , Karta of Hindu Undivided Family, holder of power of attorney cannot nominate. If the shares are held jointly, all joint holders will sign the nomination form. Space is provided as a specimen, if there are more joint holders more sheets can be added for signatures of holders of shares/debentures and witness. 2. A minor can be nominated by a holder of shares/debentures/deposits and in that event the name and address of the Guardian shall be given by the holder. 3. The nominee shall not b e a trust, society, body corporate, partnership firm, Karta of Hindu Undivided Family or a power of attorney holder. A non-resident Indian can be a nominee on repatriable basis. 4. Nomination stand rescinded upon transfer of share/debenture or repayment/renewal of deposits made. 5. Transfer of share/debenture in favour of a nominee and repayment of amount of deposit to nominee shall be a valid discharge by a company against the legal heir.


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6. The intimation regarding Nomination/Nomination Form shall be filed in duplicate with Company/Registrar and Share Transfer Agents of the Company who will return one copy thereof to the share or debenture or deposits holder.

BACK


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SECURITIES AND EXCHANGE BOARD OF INDIA

INVESTMENT MANAGEMENT DEPARTMENT

Proposal on waiver of load for direct applications in Mutual Fund schemes

Currently all investors irrespective of the mode of entry are required to

pay the entry load.

SEBI has stipulated that the loads collected by the Asset Management

Companies (AMCs) for each scheme have to be maintained in a separate

account and can be utilized towards meeting the selling and distribution

expenses.

As per industry practice the load is normally utilized towards meeting the

agent/distributor’s commission. So, the entry load collected from the

investor normally goes towards paying the brokerage/commission of the

distributor through whom the application was routed to the AMC.

Keeping in view the interest of the investors SEBI is now considering

giving a waiver in entry load for direct applications received by the AMCs

i.e. applications received through internet, submitted to AMC or collection

centre/ Investor Service Centre that are not routed through any

distributor/agent/broker.

Interested people may send in their comments on this issue to

[email protected] or by writing a letter addressed to SEBI, Investment

Management Department, SEBI Bhavan, Plot No. C-4A, G Block, Bandra

Kurla Complex, Bandra (E), Mumbai – 400051 on or before September 12,

2007.

BACK

mailto:[email protected]


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GENERAL MANAGER INVESTMENT MANAGEMENT DEPARTMENT

SEBI/VCF/Cir no. 1/ 98645 /2007 August 09, 2007

To All Venture Capital Funds Registered with SEBI Dear Sirs, Sub: Guidelines for Overseas Investments by Venture Capital Funds 1. SEBI registered Venture Capital Fund (VCFs) are permitted to invest in securities of foreign companies in terms of regulation 12(ba) of the SEBI (Venture Capital Funds) Regulations 1996. Reserve Bank of India (RBI) vide its Circulars dated April 30, 2007 and May 04,2007, issued in this regard, has permitted these VCFs to invest in equity and equity linked instruments only of off-shore venture capital undertakings, subject to overall limit of USD 500 million and applicable SEBI regulations. 2. Accordingly, SEBI registered VCFs, desirous of making investments in offshore Venture Capital Undertakings may submit their proposal for investment (in the attached format) to SEBI for its prior approval. It is clarified that no separate permission from RBI is necessary in this regard. 3. For the purpose of such investment, it is clarified that – i. “Offshore Venture Capital Undertakings” means a foreign company whose shares are not listed on any of the recognized stock exchange in India or abroad. ii. Investments would be made only in those companies which have an Indian connection (i.e. company which has a front office overseas, while back office operations are in India) and such investments would be upto 10% of the investible funds of a VCF. iii. The allocation of investment limits would be done on ‘first come- first serve’ basis, depending on the availability in the overall limit of USD 500 million. iv. It is clarified that in case a VCF who is allocated certain investment limit, wishes to apply for allocation of further investment limit, the fresh application shall be dealt with on the basis of the date of its receipt and no preference shall be granted to it in fresh allocation of investment limit. v. An applicant VCF shall have a time limit of 6 months for making allocated investments in offshore venture capital undertakings. In case the applicant does not utilize the limits allocated in the stipulated period of 6 months from


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the date of its approval, SEBI may allocate such unutilized limit to other VCFs/applicants whose applications are pending with it. 4. These investments would be subject to necessary amendments to Notification No. FEMA120/RB-2004 dated July 7, 2004 [Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004], and will also be governed by the related directions issued by the RBI from time to time. 5. This circular is being issued in exercise of the powers conferred under subsection (1) of Section 11 of the Securities and Exchange Board of India Act, 1992 and is without prejudice to compliances/permissions/approvals, if any, required under any other law. Yours faithfully, Satya Ranjan Prasad


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Annexure

Proposal for Overseas Investment by Venture Capital Funds To Securities and Exchange Board of India Mumbai Name of the Venture Capital Fund SEBI Registration No. Amount proposed to be invested in Offshore Venture Capital Undertaking - in USD

Total Investible corpus of the Fund -in USD.

Name and Address of the branch of the bank through which Foreign Currency Transaction are proposed to made

Declaration: 1. Board of Trustees/Trustees have exercised due diligence with respect to the investment decision. 2. Boards of Trustees/Trustees are satisfied that the proposed investments in foreign companies are consistent with the investment objective of the scheme. A resolution to the above effect has been passed by the Boards of Trustees/Trustees on --------------------------------. Name: Signature: Place: Date:

BACK


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PR-242/2007

SEBI introduces Fast Track Issuance of Securities

In an effort to provide a faster and cost effective method of raising capital by listed companies, SEBI has decided to introduce Fast Track Issuance of Securities (FTIs). This mode of issuance was recommended by the Primary Market Advisory Committee (PMAC) and will be available to listed companies who satisfy the following requirements:

• Listed on BSE or NSE, for at least three years • Excellent track record in redressing Shareholders / Investor Grievances • Average free float market capitalization of at least Rs.10,000 crore or

more during last one year • Compliant with the listing agreement • Promoter group shares are necessarily held in dematerialized form • Trading on the stock exchanges constitute at least 2% of total listed

shares during the previous one year • Impact of Auditors Qualifications in the audited accounts, if any, not to

exceed 5% of the Net Profit / Net Loss after Tax • No prosecution proceedings or show cause notice issued by SEBI is

pending against the company / its promoters / whole time directors.

The listed companies meeting the requirements as stated above shall be eligible for rationalized disclosures as well as simplified procedural requirements as follows:

• The Stock Exchanges shall give in principle approval based on the Board Resolution / Shareholders’ Resolution approving the raising of capital / making of the issue.

• The prospectus / letter of offer shall be prepared by the Lead Managers (LM) as per the provisions of the Companies Act and SEBI (DIP) Guidelines and same shall be filed with SEBI and Stock Exchanges for record purpose.

• LM may proceed with the issue after filing the offer document with SEBI and getting in principle approvals from Stock Exchanges, subject to waiting period, if any, as per the Companies Act requirements.

• LM shall ensure that any further material developments in the issue are promptly disseminated to the public at large by way of public notice.

Necessary amendments are being made to the SEBI DIP (Disclosure and Investor Protection) Guidelines. The new mode of issuance shall be available from the date of such amendment.

Mumbai

August 24, 2007

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