Author name: CBCL

[By Zoya Farah Hussain & Digvijay Khatai] The authors are students of National Law University Odisha. Introduction The term “delisting” of securities means the removal of securities of a listed company from a stock exchange, providing an exit route for public shareholders from the company. Delisting can be either compulsory or voluntary. In the former case, a public company would delist itself following non-compliance with listing guidelines promulgated by the market regulator, unlike in the latter where the corporation voluntarily delists its securities after due approval of the board of directors and the consensus of major shareholders. Delisting facilitates companies to avoid regulatory compliances associated with being publicly traded in light of strategic shifts in the decisions of the company either due to mergers, acquisitions or other corporate reasons. Internationally, it is a crucial financial structuring instrument that controlling investors employ to increase the value of their investment.  Recently, the Securities and Exchange Board of India (‘SEBI’) has approved certain amendments based on proposals of a consultation paper released on August 2023, to ease up the delisting procedure in Indian stock markets by introducing ‘fixed price’ as an alternative to the ‘reverse book-building method’ (‘RBB’) to determine the exit price of the delisting offer. The Board has approved the amendment to make doing business easier, safeguard investors’ interests, and offer flexibility in the Voluntary Delisting framework.  While the Fixed Price Offer aims to simplify the delisting process and mitigate issues like speculative premiums, it may introduce a whole new set of challenges for minority shareholders and the price discovery process. The article compares both methods, highlighting their respective advantages and drawbacks, and suggests potential improvements, such as incorporating longer-term market price averages, to create a more balanced and transparent delisting framework.  Reverse Book-building method In India, the procedure of delisting is governed under the SEBI (Delisting of Equity Shares) Regulations, 2021. (‘Delisting rules’) Under the regulations, an ‘acquirer’ is a person who is willing to offer a ‘minimum price’ to the equity shareholders of a company, to which the latter agrees to transfer the shares in favour of the former. The floor price will have to be determined in terms of Regulation 8 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”). This regulation precisely embodies within itself, what we call the ‘reverse book-building method’.   The public shareholders upon being offered the floor price by the acquirer, determine the final price (‘discovered price’) using the RBB method, at which they are willing to sell their shares. The discovered price of the shares has to be such, that upon acquisition, the acquirer’s shareholding reaches up to ninety per cent of the total shareholding of the company. The acquirer is generally bound by the discovered price, provided it is equal to the floor price or an indicative price, if any, put up by the acquirer.   As per regulation 22 of the delisting rules, if the acquirer finds the discovered price unacceptable, the same has an option of producing a ‘counter offer’. This counteroffer price by the acquirer further cannot be less than the ‘book value’ of the company, certified by a merchant bank registered under SEBI appointed by the acquirer.  The price discovery mechanism of the existing delisting provisions simply prescribes a floor price of the shares, but not a maximum price. Public shareholders, especially major position holders, can influence the delisting price through the reverse book-building price discovery process. Further, a company’s announcement of delisting its equity shares may cause a rise in volatility and an increase in speculative activity in the company’s shares. The reverse book-building price discovery process provides the ability to public shareholders (especially entities with large positions) to have a say in determining the delisting price. These loopholes are the primary reasons that an alternative has been sought by SEBI.  Fixed Price Offer SEBI in its board meeting dated June 27, 2024, has approved a ‘fixed price offer’ (‘FPO’) mechanism as an alternative to the RBB method for the purposes of delisting of ‘frequently traded’ public companies. Under the new mechanism, the fixed price will be set at a 15% premium over the floor price that is determined by the delisting rules. The introduction of this method is primarily in furtherance of an aim to simplify the delisting process in light of the ease of Doing Business by not subjecting the acquirer to the hassles of a reverse mechanism and the delays caused by it.  Further, ‘adjusted book value’ has been added as an additional parameter to calculate the floor price of infrequently traded shares of companies under the delisting rules. Certified by an independent registered valuer, this is a key metric, to determine the fair market value of a listed company by subtracting liabilities from assets and adjusting for any intangible assets or liabilities.  Under the new amendments, the threshold for a counter offer by the acquirer has been relaxed to ‘seventy-five per cent’ of the total shareholding as opposed to the ninety per cent margin, provided that fifty per cent of the public shareholding has been tendered.  Is FPO a suitable alternative? While the recent SEBI discussions have put RBB in an auxiliary position, there needs to be a neutral evaluation of both the contesting methods before promoting either of them.   The loopholes cited in the meeting regarding the method of RBB were, firstly, that the Delisting Price often included an exorbitant premium (at times, more than 100%) over the Floor Price attributable majorly to the speculators who in anticipation of delisting start cornering shares to accumulate a sizeable shareholding to seek an unreasonable premium, thereby making the completion of the process of delisting cumbersome. Secondly, overdependence on public shareholders who are not necessarily equipped with share market information for price discovery leads to promoters being exploited for higher returns. In order to mitigate such loopholes, opinions incline towards the FPO method. While it is expected to provide certainty regarding the pricing of the delisting offer, it introduces new challenges

[By Anoushka Das, Dhaval Bothra & Arya Vansh Kamrah] The authors are students of SLS Pune.   Introduction The Securities and Exchange Board of India (SEBI) has recently released its circular dated August 20, 2024, detailing a cyber security framework for its Regulated Entities (REs) in light of the rapid increase in technological developments in the securities market. The integration of technology into the securities market poses a double-edged sword, which may expose the players in the market to cyber risks and cyber incidents. While the integration of technology brings efficiency and innovation, it simultaneously exposes market participants to potential cyber threats, including data breaches, ransomware attacks, and fraudulent activities. SEBI, after due consultation with the stakeholders, has prudently formulated a framework via its circular to meet its six cyber security goals for combating cybercrime, i.e., governance, identification, protection, detection, response, and evolution. SEBI has outlined a robust scheme designed to safeguard stakeholders from the complex and evolving cybersecurity threats facing the securities market.  Key Highlights of the Framework Under this framework, SEBI has categorized the REs into five categories based on the extent of operations, trade volume, number of clients, etc.  In pursuance of SEBI’s focus on cybersecurity and cyber resilience, the market regulator has framed the following guidelines in accordance with its cybersecurity functions:  Governance: SEBI has mandated that all REs continuously allocate and communicate clear roles and responsibilities related to cybersecurity risk management. Additionally, it has introduced the Cyber Capability Index (CCI) as a tool to assess and monitor the cybersecurity progress of Market Infrastructure Institutions and Qualified REs  Identification:  REs are mandated to identify and classify critical systems according to their operational importance and sensitivity. This includes periodic IT risk assessments and prioritizing responses based on current threats and vulnerabilities.  Protection: REs must ensure that a robust authentication and access policy is in place with due log collection and documentation. Moreover, SEBI has enumerated a list of guidelines, including audits, vulnerability assessment and penetration testing, and security solutions that need to be mandatorily implemented.   Detection: The REs are mandated to institute a Security Operations Centre (SOC), either internally or via third parties, and ensure that the functional efficacy of the same is measured on a half-yearly or yearly basis based on the category it belongs to.   Response: The REs must compulsorily formulate a Cyber Crisis Management Plan (CCMP), and in the event of any incident, a Root Cause Analysis (RCA) must be conducted to understand the root cause of the incident.   Recovery: SEBI in its circular has provided an indicative recovery plan based on which REs must document a comprehensive plan for response and recovery from cyberattacks.   Evolution: SEBI has mandated that the REs must formulate “adaptive and evolving” controls to tackle vulnerabilities. The circular takes cognizance of the ever-evolving nature of technology and its role in the securities market and undertakes to evolve with the changing times by making updates to the circular as and when the need arises. This forward-looking approach leaves enough room for the framework to evolve while making a sufficient attempt at tackling the pre-existing problems.   Implementation of the CSCRF SEBI has phased the implementation of CSCRF compliance based on the categories in which the REs fall. The implementation date for the six categories of REs that already have circulars in place is January 1, 2025, while for REs to which the CSCRF measures are being extended for the first time, the implementation date is April 1, 2025. The market regulator has considered the challenges that first-time compliance imposes on regulators and has allowed a relaxed timeline to accommodate these difficulties.  A robust monitoring mechanism further underscores the efficacy of the framework. The CSCRF has divided the compliance reporting between two authorities. For Security Brokers and Depository Participants classified as Qualified REs, the reporting authority will be the relevant stock exchange or depository. For MIIs and the remaining Qualified REs, SEBI will serve as the reporting authority. While CSCRF does not provide for obligations of the REs in case of non-compliance of the implementation dates, SEBI has power under the SEBI Act, 1992, to impose penalties on REs that fail to comply with its directives and frameworks.  Analysing the Impact of the Framework The REs are now burdened with the additional responsibility of adhering to the cybersecurity measures outlined in the circular. On one hand, the compliance requirements and strengthened governance structures may bolster investor confidence in the securities market. Complying with the CSCRF framework can help the REs align with international cybersecurity standards and enhance their reputation and credibility in the global market. The rigorous standards may drive innovation in cybersecurity technology and solutions as REs look for efficient methods to fulfil compliance without compromising productivity.   However, on the other hand, the framework is likely to compel the REs to overhaul their internal systems, procedures and infrastructure to meet the new cybersecurity standards. The additional list of compliances would result in significant expenses for the REs. Smaller REs could face considerable challenges in complying with the CSCRF standards. This may further lead to a competitive disadvantage and an increased dependency on larger institutions for cybersecurity and cyber resilience support. Moreover, the lack of regulation regarding external SOCs leads to a regulatory gap and creates uncertainty with respect to the obligations of REs that opt for third-party SOCs, in case of non-compliance with CSCRF standards.   The circular is a progressive step in addressing the cybersecurity issues prevalent in the market. However, the effectiveness of the circular can only be adjudged upon observing the cooperation of the REs and the diligent monitoring of market players against the established standards once implementation begins.  Recommendations The CSCRF aims to ensure uniformity of cybersecurity guidelines for all REs. However, the framework may not fully address the unique challenges faced by different categories, potentially leading to compliance issues and security gaps. For example, while the CSCRF’s cybersecurity controls are crucial for market safety, they are resource-intensive, especially for smaller REs, which may struggle with the

[By Debarchita Pradhan] The author is a student of National Law School of India University, Bangalore.   Introduction Put simply, insider trading means trading by a person in a company’s securities while he/she has some secret price-sensitive information that is not generally available to the public. However, there have been substantial issues regarding whether the information is generally available to all.   In the recent case concerning allegations of insider trading in Future Retail Ltd. (FRL) scrip, the Securities Appellate Tribunal (SAT) opined that if the information is published in media, then it would cease to be unpublished and would be considered generally available. However, it was the last opportunity to form such an opinion because later, the amendment to the SEBI (Prohibition of Insider Trading) Regulations, 2015 (hereby referred to as “2015 Regulations”) excluded “unverified event or information reported in print or electronic media’ from the definition of “generally available information” (hereby referred to as GAI).   The paper argues that this amendment is too restrictive and would further disincentivize the investors rather than protect them. It would first, give a brief overview of the jurisprudence around information being generally available under insider trading law. Secondly, it would provide the repercussions that may flow from the recent amendment. Thirdly, it will provide a pragmatic alternative to the amendment. Fourthly, the paper will conclude.  Chapter I: Development of the idea of “generally available information” Presently, in the 2015 Regulations, an insider is defined to be someone who is either a connected person or one who possesses unpublished price-sensitive information (UPSI). In the SEBI (Prohibition of Insider Trading) Regulations, 1992 (hereby referred to as “1992 Regulations”), the definition of “unpublished price-sensitive information” provided that for information to be UPSI, it should not be generally known or published by the company. The use of “or” indicates that information can be generally known in ways other than the publication by the company itself. This rationale was visible in the order passed in Hindustan Lever Ltd v. SEBI1, where it was observed that expectations regarding an event, being already in the media, were considered to be generally known. Later, through an amendment in 2002, the definition of “unpublished” was given. It provided that information would be considered unpublished if it is not “published by the company or its agents. This indicates that for the information to be generally available, it needs to be made available by the company itself. So, the 2002 amendment was narrower than the 1992 Regulations with regards to the meaning of generally available information.   Later, a High-Level Committee was appointed under the chairmanship of Justice N.K. Sodhi to review the 1992 Regulations and further provide a draft for the 2015 Regulations.  In these regulations, GAI is separately defined.  It is broader than the 2002 amendment since the only condition required for information to be generally available is that it should be available to the public in a non-discriminatory manner. This broader view was recently evident in the ruling given by SAT in the Future Corporate Resources Pvt. Ltd. (FCRPL) v. SEBI. The SAT opined that the information doesn’t need to be only from the company itself to be considered as generally available. The same logic was also followed in previous cases that arose after the 2015 Regulations. However, later through an amendment to the definition of GAI on 18 May 2024, “unverified event or information reported in print or electronic media” were excluded from its ambit.   Chapter II: Repercussions That Follow [A] Ignoring the Channel When holding someone accountable for insider trading, especially if they are not directly connected but are said to have used undisclosed price-sensitive information (UPSI) for trading, it’s important to consider whether there is any evidence about how the accused received this information and from whom. In many cases where SEBI has omitted this requirement, the SAT has come down heavily on it. For instance, in Shruti Vora and Ors. v. SEBI, the question was whether a “forwarded as received” WhatsApp message regarding the quarterly financial results of a Company, before the company’s official publication, would amount to a UPSI. In this case, the SEBI admitted that despite their thorough investigation, they could not find the original leakage of the information. On such admission, the SAT rightly condemned SEBI for downplaying the requirement of establishing a linkage between the source of UPSI and the person alleged to have possession of UPSI before pinning liability on anyone. Similarly, in Samir C. Arora v. SEBI, SAT held that SEBI has the burden to provide concrete evidence showing that the accused actually received the UPSI from a source. However, the recent amendment closes the doors for inquiring whether there was any such linkage or where an un-connected person has received the UPSI from. No matter the existence of any such linkage, if a person, alleged to be an insider, trades while possessing information published only in unverified media, he may still be liable. This is particularly concerning when such liabilities require a higher degree of proof than a normal civil suit.  [B] Reducing assistance for investors: The above issue is further concerning when the conditions for information to be UPSI as well as that of disclosures of UPSI is already lowered. Nowhere in the Regulations, it is mentioned that the UPSI should be only concrete information. In the Satyam Computer case, the AO had clarified that not only concrete decisions, but any information (including proposals, etc.), which if published is likely to materially affect the price of securities of a company, would constitute price-sensitive information (PSI). Further, in the K.K. Maheswari case, the AO reiterated that PSI would include “any information”, i.e., not only a ‘final decision’ but would include the probable and most likely event. So, UPSI can include proposals or just mere possibilities of an event.  Now, as per Schedule A of the 2015 Regulations, there should be prompt public disclosure of UPSI no sooner than “credible and concrete information” comes into being to make such information generally