Capital Markets and Securities Law

[By Arnav Laroia & Shashank Pandey] The authors are students of West Bengal National University of Juridical Sciences, Kolkata.   Introduction The Securities and Exchange Board of India (‘SEBI’) recently made significant changes to the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 (‘Regulations’) by an amendment, signalling a watershed moment in the evolution of the Indian real estate investment landscape. The SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2024 (‘Amendment’) seek to improve accountability, reliability, and operational efficiency in the Real Estate Investment Trusts (‘REITs’) sector, reflecting SEBI’s commitment to creating a strong and dynamic investment environment. Furthermore, the Amendment aims to make real estate investments more accessible to retail investors, especially through Small and Medium REITs (‘SM REITs’), thereby boosting confidence in investment in commercial real estate. REITs are companies that own, operate, or finance income-generating real estate properties, allowing investors to earn dividends from real estate investments without directly owning property.   It is worth noting that these changes come at a critical time as the Indian real estate market matures and attracts a wide range of domestic and international investors. The updated Regulations, which address key areas such as regulatory compliance, disclosure requirements, and investor rights, are expected to boost the credibility and appeal of REITs in India.   This article delves into the specific changes resulting from the Amendment, their implications for stakeholders, and the overall impact on the Indian real estate investment ecosystem.  Regulatory Initiatives: Enhancing Accessibility The Regulations prior to the amendment simply defined a REIT under Regulation 2(1)(zm)  as a trust registered under the Regulations. The Amendment has expanded the definition of REIT under Explanation 1 of Regulation 2(1)(zm) to include SM REITs, as added under Chapter VIB of the regulations. An SM REIT under Regulation 26H(c) is defined as a REIT that pools investor funds into one or more schemes in accordance with sub-regulation (2) of Regulation 26P. Regulation 26P(2) allows an SM REIT scheme to make an offer of units if the proposed asset size is between Rs. 50 crores and Rs. 500 crores, and the minimum number of unitholders, excluding the investment manager, its related parties, and associates, is at least 200 investors.  The Amendment’s recognition and regulation of Small and Medium Real Estate Investments is a critical step towards protecting investments and increasing investor trust in this specialised investment industry. Furthermore, by establishing asset size requirements and a minimum number of unitholders, this regulatory measure will also stabilise the Small and Medium Real Estate Investment market, which is a high-risk market. The following will encourage investment in smaller and emerging real estate projects that might not meet the thresholds for traditional REITs, which are set at a minimum value of Rs. 500 crores under Regulation 14. This is a significant step towards increasing investment in smaller projects and cities, making it easier to invest in REITs for relatively smaller investors.   Notably, India’s small cities and towns are becoming significant regional job markets due to economic expansion and infrastructure improvements. According to reports, Tier-II and Tier-III locations offer talent and real estate costs at least 30% lower than Tier-I cities. Therefore, enterprises are increasing their presence in regional cities to meet rising consumer demand, contributing to the growth of the real estate market. Additionally, the requirement for a minimum number of 200 unitholders helps spread investment risk across a large group of investors, potentially lowering individual risk and increasing market stability. This could also possibly lead to increased diversity and inclusion of willing investors who were otherwise excluded from such REITs because of a lack of opportunity to invest.  Protection of Assets: Ensuring Accountability The Amendment under Regulation 26R mandates that the investment manager identify and provide information in a draft scheme offer document on the real estate assets or properties it intends to purchase. The document must be filed with SEBI and with the designated stock exchange. The minimum price for each unit of the SM REIT scheme is Rs. 10 lakhs, with each scheme identified by a separate name. As previously mentioned, each scheme’s real estate assets must be worth at least fifty crore rupees.  In addition, the books of accounts, bank accounts, investment or demat accounts, and assets are all required to be ring-fenced and separated by the trustee and investment manager. The trustee must ensure the property papers proving the title to the real estate assets or properties once a year and keep them in safe deposit boxes at a designated commercial bank. Furthermore, the draft scheme offer document shall be hosted on the websites of the SEBI, approved stock exchanges, and merchant bankers involved in the matter for a period of 21 days, therefore becoming publicly accessible.  These are some significant steps towards achieving the goals of the Amendment, as the inclusion of real estate assets in the draft scheme offer document and its 21-day public disclosure period increase confidence and transparency, enabling prospective investors to make well-informed decisions. In addition, including SEBI in the evaluation of the draft scheme offer document and providing feedback guarantees that the schemes comply with regulatory requirements and that any prospective issues are resolved before the scheme’s disclosure to the public. This regulatory monitoring has some resemblance to securities market norms, such as businesses’ publishing of the Draft Red Herring Prospectus, which is essential to maintaining investor confidence and the integrity of the SM REIT market.  Additionally, the minimum unit price of Rs. 10 lakhs ensures that the investments are significant and that the investors are financially capable of understanding and accepting the associated risks, given the high-risk nature of this market. Moreover, asset segregation and safekeeping safeguard investors’ funds and ensure accountable management. The explicit requirement to keep property documents secure, as well as the trustee’s annual inspection, ensures accountability and proper management of real estate assets.  Provision for Distributions: Streamlining Interests The amendment further stipulates under Regulation 26ZK that, in accordance with the Companies Act, 2013, the investment manager must transfer 95% of the Special Purpose

[By Priya Sharma & Archisman Chaterjee] The authors are students of National Law University Odisha   Introduction  To facilitate a uniform approach for verifying market rumours by listed entities, the Securities and Exchange Board of India (SEBI) recently notified the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2024 (the Amendments). These amendments were accompanied by a Circular on ‘Industry Standards on verification of market rumours’ (the Circular).  Effective from 17 May 2024, the Amendments provide criteria for verification of market rumours in terms of material price movement instead of materiality of event or information and the mechanism to consider unaffected price with respect to transactions related to securities. The Circular requires the Industry Standards Forum (comprising representatives from ASSOCHAM, CII and FICCI) to formulate industry standards applicable to the implementation of the requirement to verify market rumours under Regulation 30(11) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”). Accordingly, the requirement to verify market rumours shall apply to the top 100 listed companies, effective June 1, and to the next 150 listed companies, effective 1 December 2024.  While the amendments are a welcome step in promoting uniformity and revamping the regulatory framework for market rumours, SEBI may have missed the opportunity to close regulatory gaps. Specifically, there is inadequate oversight on social media platforms and potential for false denial or confirmation of rumours.  ​​​The latest Amendments and accompanying developments In pursuance of the Amendments, the Industry Standards Forum has published ‘Industry Standards Note on verification of market rumours under Regulation 30(11) of LODR Regulations’ (“Guidance Note”). The Guidance Note defines ‘Mainstream Media’ and the news sources that will be included within its ambit. It shall be the responsibility of the listed entity to put in place proper technology solutions and engage social media agencies to track the news reported in Mainstream Media. The requirement under Regulation 30(11) will only be applicable to the market rumours reported in this Mainstream Media.   Criteria for Verification In order to activate the applicability of Regulation 30(11), the market rumour in question must not be vague or general in nature. Instead, it must provide specifically identifiable details of a matter/event or provide quotes or be attributed to those who are reasonably expected to be knowledgeable about the matter. Another prerequisite is that there must be ‘material price movement’ in the scrip of the listed entity, as opposed to the previous ‘materiality of event or information’ criteria. The listed entities usually avail services from agents or develop in-house teams to track such movement in their scrip. The obligation is placed on the promoters, directors, KMP and senior management of the entity to provide adequate and accurate responses to the queries raised to them. However, there are significant gaps in regulation that warrant attention.  ​​​Exclusion of Social Media: a missed opportunity The rumour verification requirement was originally introduced to avoid false narratives that may impact the price of the securities of a listed entity. Notably, the definition of Mainstream Media excludes social media, which means that social media channels/accounts, such as those run by finfluencers having lakhs of followers, fall outside its scope.   Finfluencers are known to influence their audience by providing financial education and offering investment recommendations. In many cases, these finfluencers are unregistered, and may not adhere to any disclosure requirements. Apart from advice, finfluencer channels may also contribute or give rise to market rumours, which may in turn affect the scrip of a listed entity. Such market investment scams are on the rise. SEBI, in the recent past, has been cracking down on such activities, but these actions will largely remain ineffective in dealing with the menace of finfluencers in the long run. Currently, there is no specific legal framework dealing with finfluencers who are not registered as either Investment Advisors or Research Analysts. Therefore, considering the current regulatory gap, it is crucial for SEBI to tighten its regulatory grip on social media channels as well. The regulatory mechanism could incorporate an oversight mechanism to verify compliance by social media intermediaries and finfluencers.   In the present case, Mainstream Media must also include social media within its ambit, considering the fact that investment channels run by finfluencers have become one of the most important sources of investment information and financial literacy in recent times. Such inclusion may increase compliance costs, but will ultimately further SEBI’s overarching objective of protecting interests of investors.  While broadening the scope to include social media will be a step forward, there are other notable issues that need addressing.  Regulatory Gaps As per the Guidance Note, the listed entity is required to either confirm or deny the rumour in case of material price movement. According to the price framework post confirmation of the rumour (price framework), the price would be frozen only if the said rumour is accepted to be true. In case the entity opts to deny the rumour, the price would be left to pan out in the usual course of business. Upon verification of the rumour, the price framework comes into effect. It envisages the mechanism for calculating the volume weighted average price (‘VWAP’), which dictates the price of a transaction. It is computed by deducting the variation in weighted average price (‘WAP’) from the daily WAP during the period between the date of material price movement and the trading day after rumour verification. However, there is uncertainty as to what would happen if an entity opts to deny the rumour, but later proceeds with the said rumoured transaction which specifically identifies the said entity. The present regulations which encompass both the LODR regulations as well as SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”) do not explicitly dictate the recourse in such a scenario.  To understand how such a situation may be dealt with, it is necessary to look at the ‘Put up or Shut up’ rule (outlined in the UK’s Takeover Code) implemented in the UK. The

[By Biraj Kuanar] The author is a student of National Law University Odisha.   Introduction  The recent amendments to the SEBI (Alternative Investment Funds) Regulations 2012, introduced by SEBI on 25 April 2024, when read along with the circular issued by the Securities and Exchange Board of India (SEBI) on 26 April 2024, aim to create a tectonic shift in the alternative investment landscape in India. The goal of these amendments is to provide flexibility to Alternate Investment Funds (AIFs) and their investors while concurrently addressing regulatory arbitrage and circumvention of law concerns.  Before discussing the changes incorporated by the recent amendments, it is important to understand how AIF exits operate. These funds usually have a fixed tenure, after which they enter a liquidation phase. During this phase, fund managers are tasked with selling off the remaining investments and returning capital to the investors. However, fund managers face numerous hurdles when dealing with illiquid assets that can’t be easily divested within the stipulated timeline. This challenge thereby sets the stage for the recent amendments.  At the core of the changes lies the introduction of a “dissolution period” for AIFs, which promises to revolutionise the handling of unliquidated investments. Prior to the amendment, AIFs were presented with limited options while dealing with unsold assets due to a lack of liquidity at the end of their tenures. The first option is the distribution of assets taking place in-specie, which is the practice of distributing an AIF’s assets to investors in their current form instead of conducting the sale of assets and distributing cash so acquired. While such distribution allows for the fund’s closure on time, it creates difficulties for investors who may not be equipped to manage these assets on their own.  The second option for dealing with unsold assets is to set up liquidation schemes for holding or acquiring such assets. The amendments, by providing greater flexibility in handling such situations, ensure investor protection to a great extent.  The new dissolution period offers a more nuanced alternative aimed at streamlining the process under which, post-expiry of the traditional one-year liquidation period, AIFs can enter into the dissolution period after garnering approval from at least 75% of their investors. Meanwhile, the AIFs can sell the unliquidated investments or continue distributing them in-specie to the investors.  This flexibility, however, comes with strings attached. AIFs going down this route must first arrange bids for the remaining 25% of unliquidated investments to provide dissenting investors an option to exit. If, upon the exit of the dissenting investors, any portions of the bids remain, they are to be provided to non-dissenting investors for pro-rata exit, in case they choose to do so. What is important to note is that the dissolution period can’t exceed the AIF’s original tenure, nor are extensions permitted. In addition to this, neither fresh commitments from investors nor new investments by the AIFs are permitted to ensure that the liquidation of remaining assets is not hindered.  The launch of new liquidation schemes from 25 April 2024, has also been prohibited by SEBI. As in previous times, AIFs would set up separate liquidation schemes in order to acquire and hold the unliquidated investments of AIF schemes that were on the verge of expiring. This has been done to counter the notoriety of the mechanism, which plagued the commercial viability of the schemes.  Encumbrances on AIFs Equity: A Boost for Infrastructure Investments  The amendments have also ushered in changes to ‘encumbrances’ on equity holdings of AIFs. Category I and II AIFs have been permitted to create encumbrances on the equity of their investee companies. However, permission has only been provided for companies delving into projects in the infrastructure subsectors as listed in the “Harmonised Master List of Infrastructure” and for the sole purpose of borrowing by the investee company. And such encumbrances are to be explicitly disclosed in the AIF scheme’s private placement memorandum.  SEBI’s firm stance in addressing regulatory arbitrage and circumvention of law concerns  SEBI has taken a firm stance by imposing obligations on the AIFs, their managers, and Key Management Personnel (KMPs), to exercise caution while conducting due diligence concerning their investors and investments in particular on foreign investments. KMPs include senior executives such as the fund manager, chief investment officer, and other key decision-makers responsible for the fund’s operation and investment strategies, while also ensuring compliance with regulatory requirements. The inclusion of KMPs in the new due diligence obligations underscores SEBI’s emphasis on personal accountability for regulatory compliance at all levels of AIF management. All of which is aimed at preventing any attempted circumvention of regulations or laws administered by SEBI and other financial regulators.  Temporary reprieve to select AIFs by SEBI  In addressing concerns, SEBI has provided much-needed reprieve by allowing one-time flexibility for select AIFs. This flexibility is provided for schemes that have already expired or are expiring by 24 July 2024, and do not have any investor complaints pending concerning the non-receipt of funds as of 25 April 2024, wherein, upon meeting such conditions, an additional liquidation period until 24 April 2025 will be granted.  All of this is carried out to make sure that AIFs can fully liquidate their investments, carry out in-specie distribution, or opt for the dissolution period that has been brought into the picture via the recent amendments. Further, the circular, which was issued by SEBI on 26 April 2024, also acts as a guiding light in implementing the various changes that SEBI has brought in through the amendments.  Balancing Flexibility and Oversight: Implications and Analysis  The recent amendment represents how the landscape of alternate investments is evolving in India by showcasing the steps taken in the right direction to address the challenges faced by AIFs and their investors in trying to balance flexibility provided to AIFs and investors with the regulatory oversight over them by regulators. The newly brought-in dissolution period acts as a pragmatic and streamlined approach to the problem of unliquidated investments and the handling of unsold assets at

[By Shruti Srivastava] The author is a student of National Law University and Judicial Academy, Assam.   Introduction Currently, India has more than 1,12,718 registered start-ups, making it the third largest start-up ecosystem globally after the USA and China. However, despite these burgeoning numbers, India has only 111 profitable unicorns. Among the many concerns that India’s startup ecosystem is facing, funding emerges as paramount. Though there are multiple avenues for startups to raise funds such as private equity, venture capital etc., a new route of crowdfunding has started making its place in the market.  Crowdfunding is simply the collection of small funds from multiple investors for some social cause, business venture or specific project, typically facilitated through web-based platforms or social networking sites. There are different types of crowdfunding, but not all of them need debates and discussions. Social lending or donation-based crowdfunding, for instance, is a type of crowdfunding in which donations are made without any expectation of investment. They carry minimal risk, but still, SEBI has issued Framework on Social Stock Exchange under which donation-based crowdfunding can be regulated. The second type of crowdfunding is peer-to-peer lending, wherein the platforms connect the lenders with the investors for loans of an unsecured nature. RBI came up with the Master Directions- Non-Banking Financial Company- Peer to Peer Lending Platform (Reserve Bank of India) Directions, 2017, which laid down the rules for peer-to-peer lending. Lastly, equity-based crowdfunding in which equity shares of a company are given to investors in exchange of funds, but it currently lacks legal recognition. This issue is discussed in detail later in the article.    This article commences by examining the contemporary discourse surrounding equity crowdfunding, elucidating its relevance and evolving dynamics. It subsequently conducts a comparative analysis between SEBI’s consultation paper on crowdfunding and the UK’s crowdfunding regulation. Lastly, the article offers a few suggestions and recommendations to enhance SEBI’s approach to crowdfunding.  Equity Crowdfunding in Contemporary Discourse Recently, the Registrar of Companies (NCT of Delhi and Haryana) issued an order stating that two companies, Anbronica Technologies Limited and Septanove Technologies Private Limited, are liable for raising funds through the online equity crowdfunding platform, Tyke, as the fundraising was in violation of Section 42 of the Companies Act 2013. This order underscored the growing influence of crowdfunding platforms as pseudo- stock exchanges.  In 2017, SEBI raised concerns with LinkedIn, inquiring whether they provided a platform for start-ups to raise funds in contravention of the Companies Act 2013.   Furthermore, in the Sahara India Real Estate Corporation Limited & others v Securities and Exchange Board of India & another1, two companies of the Sahara groups, not listed on the stock exchange issued their securities to approximately 3 crore people in the name of private placement. This action violated the Companies Act of 1956 which allowed private companies to issue its securities to only 50 people. Subsequently, SEBI and later the Supreme Court of India held this act to be violative of the provisions of private placement. They clarified that if an issue is made to such a large number of people, it should be treated as a public issue.   It is important to note that at present, equity crowdfunding in India is not explicitly regulated and therefore this regulatory vacuum requires attention. However, in 2014, SEBI came up with a consultation paper acknowledging the usefulness of crowdfunding and proposed a viable regulatory framework. Furthermore, in 2016, SEBI issued a press release cautioning investors. The press release highlighted the increase in the number of digital platforms for raising funds, none of which are recognized or approved by securities market laws.   At this juncture, it is imperative to analyze whether the proposed framework is beneficial for India’s context. Additionally, a comparative analysis is important to understand what lessons India could learn from other jurisdictions.  SEBI’s Consultation Paper vis-a-vis UK’s Crowdfunding Regulation  The framework proposed by SEBI is similar to many functional models in other jurisdictions. However, the UK’s model is flexible, with its primary focus remaining proportional to the risk posed, making it more suitable for India.  The SEBI consultation paper proposes to allow only accredited investors to participate in equity crowdfunding, which includes Qualified Institutional Buyers (QIBs), Companies with a minimum net worth of Rs. 20 crore, Eligible Retail Investors (ERIs) and high-net-worth Individuals (HNIs). Though accredited creditors comprise ERIs, there are a series of restrictions imposed on them. For instance, they must be seeking investment advice from an investment advisor or have a minimum annual gross income of Rs. 10 Lacs. These restrictions create high entry-level barriers, keeping out many retail investors who might be interested in funding Indian startups.   While SEBI has proposed a minimum investment limit for all accredited investors, the UK’s model does not, however, have any restrictions on investments for investors who receive professional advice, are associated with venture capital or corporate finance businesses, or recognized as having a high net worth. Here, SEBI could benefit from the UK model by considering the removal of the minimum investment limit for QIBs and HNIs. They have multiple investment options available, and a minimum limit might act as a barrier to them. These accredited creditors possess a pool of resources, expertise, and experience. Therefore, even if they invest a relatively small percentage in startups, it can still be beneficial. They are likely to invest in startups with a higher probability of success; aiding small retail investors in their decision-making and protecting them from investing in startups with poor outlooks.   Secondly, disclosure requirements are crucial for crowdfunding, but they must differ from IPO disclosures. In the UK, crowdfunding regulations emphasize providing investors with fair, clear, and non-misleading information to support their investment decisions. However, while the UK regulation talks about disclosure requirements, it does not specify compulsory disclosures. Not specifying the disclosure requirements can leave a grey area, and because of this, SEBI has suggested a list of disclosure requirements that have to be made by a company.   Lastly in  the UK, if a project fails to

[By Siddhant Shinde] The author is a student of MNLU Mumbai.   Introduction Real Estate Investment Trusts (‘REIT’) are instruments that allow investors to pool their collective resources and invest in publicly-traded securities, in the form of real estate, without having to make substantial capital commitments. Thus, they provide an avenue for consumers to invest in commercial real estate with regular returns to investors along with long-term capital growth, and an alternate source of funding to developers. Introduced initially in the USA as a way to counter inadequacy of public capital for the real estate industry, it was introduced in India through SEBI (Real Estate Investment Trusts) Regulations, 2014 (‘REIT Regulations’).  In the first part, the author discusses the basic framework of REITs in India, and juxtaposes the same with the The Securities Contracts (Regulation) Act, 1956 (SCRA), highlighting the ambiguity related to the classification and positioning of REIT units within the SCRA Framework. Following this, the article argues for the inclusion of REIT units within the meaning of ‘securities’.   I-REIT Framework and SCRA – Locating the Problem  REITs in India are registered as a Trust with SEBI,1under the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993, and regulated by the REIT Regulations, which are amended regularly. Every REIT has various stakeholder; namely, Managers, Trustees, Sponsors, and Unitholders. While managers provide investment management services to the Trust, the Trustee holds the assets, for the benefit of the unit holders (beneficiaries).2 Much like the Board of Directors of a company, even the Trustees have a fiduciary responsibility towards the unitholders, which the managers don’t. Another important stakeholder is the Sponsor/Sponsor Group, who inject their assets into the initial portfolio of the trust and appoint the trustee, and thus play a crucial role in the initial stages of setting up an REIT.  The main purpose of the REIT however is to invest in commercial real estate assets, which are divided into units and traded on stock exchanges. These trusts are established for the benefit of unitholders, who receive rental distributions.  The Securities Contracts (Regulation) Act, 1956 (SCRA) defines the scope of securities within the Indian regulatory framework. It defines ‘securities’, and intriguingly includes the term ‘units’. However, the SCRA refrains from offering a precise and comprehensive explanation of what these ‘units’ encompass. SCRA’s definition of securities, however, is not exhaustive, and Courts have maintained that the term must be interpreted widely. The lack of a specific statutory definition under SCRA makes it difficult to ascertain if REIT units fall under SCRA’s ambit.   Making a Case for Inclusion of REIT Units within the Ambit of ‘Securities’  The SCRA limits the scope of securities to marketable securities of a ‘company’ or a ‘body corporate’3. The question of classification of REIT is dealt with by two statues. While SEBI Regulations classify REITs as trusts, the Foreign Exchange Management (Non-Debt Instruments) Rules,2019 define REITs as an ‘investment vehicle’4. The SCRA makes no explicit mention of either of these terms, raising the question if trusts or investment vehicles can fall under ‘other marketable securities.   The marketability criteria purports that an instrument must be freely bought and sold in a market regardless of whether it is listed in a stock exchange. It is argued that the absence of any explicit terms restricting or barring transfer of REITs implies that they are transferrable, and hence marketable. A similar line of argument was accepted by the Court, when it held that OFCDs are marketable. Marketability in this context is closely linked with transferability, and thus the test of marketability implies that an instrument must not only be capable of being sold in the market, but also freely transferrable. REITs can raise capital from investors through issuance of units via initial offer, which is collectively used to invest in real estate assets. Post the initial offer, Regulation 16 mandates REITs to be listed on a recognized stock exchange, where the trade of individual REIT units is governed by the bye-laws of the respective stock exchange. Further, Regulation 19 clearly states that REIT units are fully transferrable. Thus, the absence of explicit restrictions on transfer affirms the marketability and transferability of REIT units.  In the past, the Court has also considered the purpose of the instrument to decisively determine its nature. Thus, an instrument that is marketable and issued for the purpose of investment falls under Section 2(h). This test purports that the instrument must be issued in an investment context. The definition clause itself explicitly refers to “real estate investment trust” as an investment vehicle. Regulation 13 prescribes the investment criteria for REITs. It specifies that a REIT shall invest in income-generating real estate assets, thus highlighting the core investment nature of REITs. Further, from the unitholder’s perspective too, Regulations 18 and 20 talk about Public Issue Allotment and Minimum Public Shareholding respectively, both of which are typical features of investment offerings.   Thus, it is argued that because REIT units are marketable, transferrable and issued for the purpose of investment, they are under the ambit of ‘securities’ und thus the SCRA is applicable to REIT units too.  Further, it is also argued that the SCRA is an essential regulatory framework, which cannot be replaced by the REIT Guidelines. The aim of The Securities Contracts (Regulation) Act, 1956 is to prevent undesirable and unethical securities transactions. Though The Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 (REIT Regulations) regulations provide a regulatory framework for REITs in India, and both largely aim at investor protection, they have varied functions. While SCRA regulates stock exchanges, brokers, intermediaries, and various other entities involved in the broader securities market, whereas REIT Regulations focus on the specific structure, governance, and operation of REITs and set criteria for their formation and operation. Thus, given the difference in their purpose and scope, the same is not a case of overlapping legislation or concurrent jurisdiction; it is thus argued that both the SCRA and the REIT Regulations are essential for regulating the REIT framework. 

[By Vikas Saran & Pritha Lahiri] The authors are students of Institute of Law, Nirma University.   Overview:   In the dynamic landscape of securities trading, the contentious practice of short selling has emerged as a focal point of regulatory scrutiny. In response to the Adani Hindenburg fiasco and in alignment with the Supreme Court directive in the matter of Vishal Tiwari v. Union of India,  the Securities and Exchange Board of India (SEBI) has introduced new regulations to address the risks associated with short selling.  The regulatory intervention reflects SEBI’s strategic approach of preventing, detecting and deterring, and underscores the importance of a balanced regulatory framework.   This article presents a detailed analysis of the recent framework introduced by SEBI. It provides insights from both domestic and international perspectives, offering a comprehensive examination of the regulatory landscape. Additionally, the authors offer innovative strategies for future improvements within this framework.  Revisiting SEBI Guidelines:   Regulation of short selling is not new in India; in 2007, SEBI introduced the first set of regulations on short selling, titled, “Circular on Short Selling & Securities Lending and Borrowing” wherein it defined short selling as the “practice of selling a stock which the seller does not own at the time of trade”. All classes of investors were permitted to short-sell with certain disclosure requirements put in place to ensure transparency. Pertinently, naked short selling, involving selling shares that have not been borrowed or even confirmed to exist at the time of the trade was not allowed by SEBI.   Fast forward to 2024, SEBI has overhauled its 2007 circular, integrating it into the “Master Circular on Short Selling and Securities Lending and Borrowing Scheme”. The new framework provides for:   Inclusivity in Market Participation: The framework democratises the short-selling arena, extending the privilege to both retail and institutional investors alike.  Prohibition of Uncovered Short Selling: In a bid to ensure the integrity of market transactions, the framework categorically proscribes the practice of naked short selling.  Restrictions on Day Trading for Institutional Investors: Institutional entities are enjoined from day trading while engaging in short selling, with an imperative to satisfy their delivery commitments.  Transparency as the Bedrock: The framework institutes rigorous disclosure mandates, requiring institutional investors to declare their short selling positions at the juncture of order placement, while retail investors are accorded a grace period extending to the trading day’s end.  Dissemination of Short Interest Data: Brokers are tasked with the daily aggregation of short-sell positions, which are subsequently reported to the stock exchanges. This data is synthesised and released on a weekly basis, enhancing the market’s transparency quotient.  In its recent circular, SEBI has synchronised the framework for short selling, detailed in ‘Annexure 3’ of Chapter 1 of the Master Circular, with provisions from the rescinded SEBI 2007 circular. Notably, this has not yielded any material changes because the recent framework essentially replicates the structure and guidelines established by the earlier framework. Therefore, while the regulatory process was updated and streamlined, the substantive rules governing short selling remained largely unchanged.  However, the Expert Committee established by the Supreme Court, after the Adani Hindenburg episode, had suggested a proactive regulatory intervention. It had emphasised using market events for enhancements, inviting SEBI and the Indian government to engage in proactive improvements aligned with market dynamics.  This suggests that while SEBI’s recent circular revision reflects a commitment to regulatory stability, there is still scope for refinement and enhancement in certain aspects of the framework.  A Global Perspective:   To gain a comprehensive understanding of SEBI’s regulatory approach, it is essential to explore international practices and their potential impact on India’s securities market landscape.   United States  The US has a long history of regulating short selling, overseen by the Securities and Exchange Commission (SEC). Regulation SHO, implemented by the SEC in 2010, includes measures to limit manipulative short selling. Rule 201 mandates trading centres to enforce price limits on short sales during significant price drops.  Furthermore, Regulation SHO Rules 203(b)(1) and (2) establish ‘locate requirements’. These rules require broker-dealers to confirm that a security can be borrowed, guaranteeing its delivery on the settlement date of the short sale.   Recently, Rule 13f-2 was approved under the Securities Exchange Act of 1934, requiring managers with significant short-sale positions to report certain information to the SEC through Form SHO.  United Kingdom  In the UK, short selling is governed by the Short Selling Regulation (SSR) of 2012 which applies to financial instruments and sovereign debt traded in the UK. Key provisions include:  Notification Requirement: Holders of significant net short positions in shares or sovereign debt have to notify the Financial Conduct Authority (FCA) upon reaching specified thresholds.  Public Disclosure: Investors who hold significant net short positions in shares are mandated to publicly disclose these positions once they cross certain predefined thresholds.  Restrictions on Uncovered Short Positions: The SSR outlines restrictions on investors entering into uncovered short positions in shares or sovereign debt.  Exemptions: Stabilisation activities and market makers meeting specific criteria may apply to the FCA for exemptions from uncovered short-selling restrictions and notification requirements.  FCA Powers: The FCA has the authority to restrict short selling in specific situations to prevent disorderly price declines and threats to financial stability.   The SSR exempts sovereign debt and CDS from uncovered short-selling restrictions and notification requirements, aligning with the government’s stance. Once implemented, there will be no such restrictions or notification obligations for these instruments.  Singapore  In Singapore, the Monetary Authority of Singapore (MAS) regulates short selling through its Guidelines on Short Selling Disclosure under Section 321 of the Securities and Futures Act, 2001. The Central Depository (Pte) Limited (CDP) addresses settlement disruptions via buying-in processes, with costs and penalties for sellers failing to deliver securities. The SGX-ST conducts surveillance to prevent market abuse.  The SGX-ST’s rules mandate disclosure for sell orders: Rule 8A.3.1 requires market participants to indicate if an order is a short sell. Rule 8A.5.1 necessitates reporting short sell order volumes before each market day. Additionally, Rule 8A.6.1 allows for the correction of erroneously marked sell

[By Tirth Purani & Ananya Sinha] The authors are students of Institute of Law, Nirma University and KIIT School of Law, Bhubaneswar, Odisha respectively.   Introduction   To make India’s debt securities market robust, the Securities and Exchange Board of India (SEBI) introduced a consultation paper on 9 December 2023, prescribing amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, (LODR Regulations) and the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, (NCS Regulations). Along with the amendments in the regulations, SEBI has also introduced fast-track public issuance and listing of debt securities. These amendments were driven by the Union Budget (2023-24) which settled its primary focus to ease the existing regulations and simplify and reduce the cost of compliance. To elevate ease of doing of business Over 3,000 law provisions were decriminalized, and more than 39,000 compliances were decreased. To put this into effect, SEBI constituted a specialized Corporate Bonds and Securitization Advisory Committee, to propose strategies for enhancing ease of doing business for debt issuers listed on the stock exchange and assess the LODR and NCS Regulations.   The authors of this post attempt to showcase the consequences of the consultation paper on India’s debt securities market and the facilitation of business operations through its proposals and recommendations. The piece aims to elaborate on the recommendations concerning the reduction of the minimum face value for non-convertible securities, need for an efficient regulatory procedure, and abolishing the requirement of minimum subscription for banks and financial institutions.   Lacunas in the existing framework and Underlying Reasoning   Debt securities such as bonds and debentures are pertinent for a company’s growth and benefit as they are efficient and cost friendly. India’s debt securities market has grown considerably, as the market of corporate bonds took a leap from Rs 16.49 lakh crore in 2014 to Rs 44.16 lakh crore in 2023. Annual issuances of listed bonds increased from Rs 3 lakh crore in 2013 to Rs 6 lakh crore in 2022. With this growth, however, there exist multiple lacunas, which are impeding the sophisticated growth of debt market. The share of retail investors in debt market is very small as bulk of the debt is raised through private placement. It lacks transparency due to potential flaws in the credit rating process such as influencing ratings by borrowers thus making the process highly unreliable. There is also lack of liquidity due to thin market as it makes it difficult to buy and sell debt instruments quickly and efficiently. Additionally, the existing regulatory framework of the debt market is not designed in a manner to accomplish minimum cost and less time in the issuance and listing procedures. Stringent regulations have discouraged investors from investing, and to say the least, market-making has been difficult to implement.  To resolve the above stated lacunas and boost the debt securities market, SEBI has been striving to raise the monetary threshold, which requires large corporations to raise at least 25% of their incremental borrowings through corporate bonds during a consecutive three-year period. Further, it has introduced settlement through delivery versus payment method that guarantees transfer of securities only after payment has been made. To improve transparency, it was mandated that all trades in the securities debt instruments shall be reported on the trade reporting platform of the stock exchanges. To make the process of issuing securities smooth SEBI introduced electronic book platform through which investors can place multiple bids in a private placement on debt basis. A novel idea for fast-track public debt securities issuance has been put out in the consultation paper, allowing regular issuers to issue debt securities publicly in less time, money, and effort.  Proposals of the Consultation paper and its implications   One of the major proposals of the consultation paper is reducing the minimum face value for non-convertible securities (NCS) and non-convertible redeemable preference shares (NCRPS) to Rs 10,000 as opposed to Rs 1 lakh earlier. However, it is mandatory for the issuer to appoint a merchant banker for carrying out due diligence of such securities. Such a step would promote investments by non-institutional investors and make the debt securities market more accessible for them. In pursuant to this, SEBI witnessed an increase in the participation of non-institutional investors.  To make the regulatory procedure more efficient and cost-friendly, the proposal provides that the financial statements should be accessible through a QR code, which will directly lead to the audited financial statements on the stock exchange’s website. As the LODR Regulations requires financial results to be submitted to stock exchanges within 30 minutes of the board meeting and immediate online publication is accessible, discretion has also been given to publish the financial results in the newspaper, which was earlier necessary. The timeline for listing fast-track issue of debt securities has been proposed to be T+3 instead of T+6 for a regular public issue. This step to a larger extent will reduce the time for raising funds. To inculcate more consistency and harmonization, the format of the due diligence certificate has been modified with formats of the certificate for equity issuances.   The consultation paper has also proposed to abolish the requirement of minimum subscription for banks and financial institutions, which will help them to generate more funds for their functioning. In the year 2023, SEBI introduced the concepts of General Information Document (GID) and Key Information Document (KID) for filing only necessary and required information. In the event of a subsequent NCS issuance, KID will take the place of the shelf placement memorandum, whereas GID will replace it during the original NCS issuance. These concepts were, however, first limited to the private placement issuance of NCS. At present, they have also been extended to public issuance of securities. These documents containing disclosures in the NCS regulations, information on key developments, and details of debt securities will aid the fast-track issuance of securities. They will reduce the complexity in disclosure requirements and only material information conveyed to the investors through them.   The above-mentioned changes are likely to reduce the time and

[By Vishesh Bhardwaj] The author is a student of National Law University Odisha.   INTRODUCTION  To generate wealth, provide liquidity to investors and raise capital, companies need access to global capital markets. Earlier, Indian firms had been able to raise equity capital from foreign investors either through listing in local stock exchanges or via international listing through depository receipts like American Depository Receipts (“ADR”) and Global Depository Receipts (“GDR”). ADR is used for trading on US stock exchanges while GDR is traded outside the US.  Recently, the Ministry of Corporate Affairs (“MCA”) notified an amendment brought in Companies Act, 2013 (“Act”)  in 2020 regarding the direct listing of shares of public companies on foreign stock exchanges (“Direct listing scheme”). This amendment in Section 23 of the Act, permits companies specified by the MCA to list their shares directly on foreign stock exchanges. Additionally, an amendment was made to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, complemented by the issuance of the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules (“Listing rules”), 2024.  The author through this post aims to highlight the benefits, problems, and gaps in the framework of direct listing scheme.  ADVENT OF THE SCHEME: A HISTORICAL OVERVIEW  The inception of the direct listing scheme in India began with the proposal outlined in the SEBI report in December 2018. This report advocated for changes to facilitate the direct listing scheme. Subsequently, the Companies (Amendment) Act 2020 and further amendments provided the legal framework for the scheme, specifying the eligibility criteria for public companies to list on select foreign stock exchanges.  In July 2021, the introduction of International Financial Services Centres Authority ILS Regulations outlined the regulatory framework for listing companies, including SMEs, startups, and various securities. This laid the groundwork for the direct listing scheme’s implementation. The announcement by the Indian government in July 2023 marked a significant milestone, signalling the direct listing scheme on International Financial Service Centre (“IFSC”) exchanges. A Working Group was formed to oversee the implementation process.  By October 2023, amendments to the Companies Act were notified to allow the direct listing scheme. The Working Group proposed amendments to existing frameworks and regulations in December 2023 to streamline the implementation process. Finally, in January 2024, MCA and Ministry of Finance notified rules allowing the direct listing scheme in GIFT-IFSC. SEBI began working on operational guidelines to facilitate the smooth functioning of the scheme.   The rationale for the regulatory changes stems from the belief that permitting Indian companies to list on foreign stock exchanges bolsters global competitiveness, especially in the technology sector. By opening Indian capital markets, innovation and efficiency are promoted, benefiting the financial ecosystem. Furthermore, nurturing finance as a high-value export sector and enticing prominent technology firms to Indian exchanges have the potential to elevate the nation’s global standing and enhance economic relations.  REAPING THE REWARDS: EXPLORING THE BENEFITS OF THE SCHEME  The move aligns with the government’s vision to position GIFT-IFSC as a global financial hub and attract foreign capital. The direct listing scheme will boost the global capital of Indian companies. The amendment provides flexibility to certain classes of domestic public companies for direct listing scheme, providing them with access to a broader pool of investors. It also reduces the compliance for listing of shares, like issuing prospectus, and disclosure of share capital and beneficial ownership.   Within the IFSC, Indian public companies are permitted to issue shares with differential voting rights, empowering them to customize unique share classes for foreign stakeholders. This flexibility augments the company’s capacity to configure its capital in alignment with its requirements, facilitating the retention of shares that grant greater control while divesting those with reduced voting authority.  From an investor’s standpoint, this classification enables them to select a share class that aligns with their investment objectives and risk tolerance. Additionally, listing shares through an offer for sale on the IFSC involves less stringent norms than listing on recognized stock exchanges in India. This streamlined process reduces compliance burdens, making it easier for promoters and investors to realize liquidity from their holdings. Moreover, it is an additional method to provide an exit to the investors.   The scheme also benefits the investor as investing through the GIFT-IFSC not only eliminates foreign currency concerns for investors because transactions are handled in foreign currency, but it also allows for extended trading hours on international stock markets, which exceed 20 hours per day. Furthermore, the GIFT-IFSC provides substantial tax incentives under the Income Tax Act,1961, including exclusions from capital gains tax on the transfer of shares in Indian enterprises within its jurisdiction.  PROBLEMS AND GAPS: THORNS OF THE SCHEME  The regulatory framework governing investments in the IFSC has a lot of complexities. Despite listing the securities on international stock exchanges, the status of public unlisted companies remains unchanged. As per Section 2(52) of the Act, a listed company is defined as one that has listed its securities on any recognized stock exchange. However, international stock exchanges are not recognized for this purpose under Section 4 of the Securities Contract Regulation Act, 1956. So, despite listing their securities on these exchanges, unlisted companies will be exempted from the obligations and compliances mandated for listed companies under the Act. This gap may result in a lapse in investor protection, as the obligations intended to safeguard investors will not be enforced for these companies.  The SEBI (Substantial Acquisition of Shares and Takeovers) (“SAST”) Regulations, 2011 are only applicable to a listed company. As the status of a public unlisted company will not change, the regulations will not be applicable here. This exposes the public companies to the risk of hostile takeovers, as competitors could potentially acquire securities without the regulatory safeguards provided by the takeover code. The absence of structured protections may pose challenges for permissible holders seeking to exit in the event of a hostile takeover. As international investments through IFSC evolve, there is anticipation that SEBI will address and provide clarity on these aspects to mitigate the associated risks and ensure a