Capital Markets and Securities Law

[By Ansh Chaurasia] The author is a student of Dr Ram Manohar Lohiya National Law University.   Introduction  The Securities and Exchange Board of India (“SEBI”) has actively endeavoured to ease and promote access for the general public in pursuance of an announcement made as part of the FY 2023-24 budget. On 9 December 2023, SEBI introduced a consultation paper (“paper”) aiming to make sweeping changes in the bond market. The proposed amendments have the potential to bring unprecedented levels of non-institutional investors’ participation in the bond market. Retail investors played an essential role in the recent sustained rally in the stock market indices, making a case for their inclusion within the bond market.  Bonds are fixed-income securities, i.e., debt securities that pay fixed interest, called coupon rates at regular intervals. They are an essential financial instrument for governments and corporations to raise funds without giving up a share in the equity. The value of the bond decided by the issuer is called ‘face value’. It is the amount promised to the bondholder upon the bond’s maturity, and the coupon value is evaluated from the face value. SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (“NCS”) enables the issuance of debt securities or non-convertible securities to raise funds (Reg 2(1)(k) and Reg 2(1)(x)). The listing and issuance of bonds are governed by a circular of SEBI that lays down procedural requirements, listing obligations, and disclosures to be made by the issuer of such instruments. These time-bound disclosures and procedural requirements provide an opportunity for informed investment decisions. Crucial disclosures regarding financial results and defaults on repayment of loans mandated under the circular have a significant bearing on investment   Bonds play an important role in diversifying an investor’s portfolio. Although stocks offer greater returns, they are proportionately riskier. However, bonds, specifically as suggested in the paper, reduce the risk by ensuring a lower yet stable coupon rate and predetermined maturity date. The opportunity to invest in the bond market for retail investors that primarily invest in the stock market would provide their investment with a cushion from frequent stock market shocks. However, the success of this proposal is concomitant with multiple factors that are discussed hereafter. The paper includes multiple proposals concerning the bond market; however, the analysis in this blog focuses primarily on issues regarding the entry and participation of retail investors into the bond market.    Recent Changes in the framework of the bond market  The gradual change within the bond market began in 2022 through a decision in a board meeting to decrease the face value of privately placed debt securities and subsequent amendment to the circular. The board considered the high face value’s deterrent effect that withheld non-institutional investors from the bond market. Consequently, face value was reduced from Rs ten lakh to Rs one lakh. The next significant change was the introduction of the regulatory framework for the online bond platforms to ensure transparency, disclosure and availability of redressal mechanisms on platforms that facilitate buying and selling on such platforms. These changes aimed to attract and benefit the participants and facilitate a secure transaction. However, during June-September 2023, the share of non-institutional investors in funds raised through bonds was four per cent compared to the general average of less than one per cent. Institutional investors dominate the corporate debt market in India because a large portion of bonds are issued to selected investors or institutional investors through private placement. The paper reveals a worrisome figure of ninety-five per cent of the issuers resorting to the private placement account for ninety-eight per cent of the funds. The participation of non-institutional investors remains abysmally low at just 2 per cent. The average participation by non-institutional investors for FY 2021-22 and FY 2022-23 remained below two per cent (Annexure III).  There are strong economic reasons to push for retail investor participation; not only do they help to diversify the portfolio for the retail investor, but they also allow the issuer (government or corporation) to diversify and distribute their risk. The burden distribution from the central bank or the conventional investors becomes crucial during economic hardships when overreliance on a particular set of mainstream investors can further aggravate the situation.    The proposed impetus to retail investors by SEBI  SEBI has proposed to further reduce the face value from Rs one lakh to Rs ten thousand to do away with the barrier of face value. It has specified such bonds to be ‘plain vanilla’ bonds. Plain vanilla instruments have simple interest rates and predetermined maturity dates thereby containing the risk. After the 2008 financial crisis, economies across the globe are more inclined to issue plain vanilla debt instruments. The US introduced the Dodd-Frank Wall Street Reform and Consumer Protection Act that promoted the issuance of plain vanilla debt instruments and raised the burden of disclosures and compliance for non-vanilla debt instrument issuers.   The securitised debt instruments, i.e., bonds backed by assets such as loans or leases that generate cash flow, are also being increasingly issued with corporate bonds as the underlying asset. Given the prevalence of securitised debt instruments, all proposals concerning bonds have been made applicable to such instruments as well. These recommendations to safeguard potential retail investors are crucial, but they only deal with seemingly overt threats.   Risks intrinsic to the retail investors  Multiple factors have a bearing on bonds, and most of which are not apparent on the face of it. There lies the problem. The significant factors for consideration in the case of stocks are market risk and company-specific risk, information about both of which is readily available and easily comprehensible.   In the case of bonds, the major factors are interest rate and credit rating. The interplay of interest rate (the repo rate decided by RBI in India) on the one hand and bond price and yield to maturity, on the other hand, is difficult to comprehend for a retail investor. However, the interplay can be summarised as an inverse relation between the market rate and the value of the bond. Since bonds are long-term investments, an informed decision on bond investment and a deeper understanding of interplay are required,

[By Shreya Saswati & Sruti Patra] The authors are students of National Law University Odisha.   Introduction The Securities and Exchange Board of India (SEBI) recently published a comprehensive consultation paper with a view of promoting ease of doing business by relaxing regulations followed in the securities market. The paper also introduces the concept of Fast Track public issuance and listing of debt securities while proposing norms for the same.  Proposed Relaxations to SEBI Regulations   SEBI’s regulations play a crucial role in regulating financial markets and listed entities, impacting the ease of doing business in India. They outline stringent compliance standards for listed entities, ensuring transparency, disclosure, and investor protection. However, excessive requirements pose challenges for businesses, especially smaller entities, impacting the ease of operations. Hence, striking a balance between robust regulations and reducing unnecessary administrative burdens is crucial to foster a conducive business environment in the country.  Reducing the face value of securities  SEBI had recently updated the minimum face value of debt securities such as Non-Convertible Securities (NCS) and Non-Convertible Redeemable Preference Shares (NCRPS) to Rs.1 Lakh as opposed to Rs.10 lakhs earlier. This reduction works as a means for greater involvement from non-institutional investors. In fact, SEBI observed an increase in their participation during July-September 2023 after this reduction. Even public feedback increasingly held high face value to be a barrier for such investors for market participation.   Hence, the consultation paper proposes two things. Firstly, issuance of NCDs or NCRPS with a reduced face value of Rs.10,000. Secondly, issuance of Securitized Debt Instruments (SDI) via private placement with face value of either Rs.1 lakh or Rs.10,000. The catch is, the issuer must appoint a merchant banker who shall conduct due diligence before issuing them. Furthermore, NCDs and NCRPS shall adhere to a straightforward structure without complex credit enhancement features or structured obligations.  Reshaping the NCS Regulations  The consultation paper also proposes changes to Schedule-I of the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, which deals with disclosures for audited financials. The current inclusion of audited standalone and consolidated financial statements for the last three financial years, along with stub period financials, in the Offer Document has caused challenges due to technical complexities. To address these concerns, the paper suggests reducing file size by including links rather than inserting financial statements directly into the document. Additionally, leveraging QR codes has been proposed to redirect users to Stock Exchange’s website hosting relevant financial data and simplifying access to this information for potential investors.  When it comes to disclosures, firstly, the paper proposes issuers to provide certain relevant information required under the Schedule1 till the latest quarter of the current financial year instead of until date of issuance in order to ease this process. Secondly, to bring uniformity, the paper proposes standardizing the record dates, i.e., the date when an investor gains ownership of debt securities  to 15 days before the interest payment or redemption due date.   Lastly, the consultation paper proposes the use of a standard format for due diligence certificate. The NCS Regulations require the issuer to obtain a due diligence certificate from the debenture trustee at the time of filing draft offer document or while listing securities. But SEBI’s Master Circular for Debenture Trustees consists of two different formats depending on their purpose. A standard format ensures clarity, consistency and easier evaluation.   Publication standards vis-a-vis LODR regulations  The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR) outlines that a listed entity is required to publish its financial results within two working days after the board of directors’ meeting. This publication needs to occur in at least one English national daily newspaper that circulates across the nation or a significant portion of India.2 But LODR Regulations already necessitate submission of financial results to stock exchanges within thirty minutes of the board meeting and immediate online publication which is accessible to debenture holders. Publishing results again in newspapers after two days is superfluous, hence, the paper proposes publication on newspaper to be optional within the designated time frame, which would help reduce unnecessary costs. Given the current digital age and the immediate accessibility of financial data online, this proposal seems pragmatic to reduce redundant costs. Balancing cost-efficiency with transparency and stakeholder communication remains pivotal in making informed decisions regarding this proposed amendment to the LODR.  Fast Track Public Issuance and Listing of Debt Securities  NCS are generally utilized by companies to secure long-term funds through public issuance of shares at a higher rate of return to the lender. The NCS Regulations govern the issuance and listing of debt securities through both public issuance of securities and private placement. Recently, Indian companies have mostly resorted to issuance and utilization of shares through private placement and that being the case, the corporate debt market raises these funds not through single placement rather multiple issuances all through the year. The decline in IPO filings can be attributed to many reasons like market volatility due to recession or hike in interest rates etc. Therefore, a need arises to increase the scope for the corporate debt market to revitalize public issue of debt securities and that too in the primary market so as to broaden the investor base and bond market in less time and cost. SEBI, through this consultation paper, tries to address the issue by suggesting a Fast Track Public Issue Process.   Technicalities & Modalities  This fast track public issue shall be kept open for a maximum of 10 working days, with a minimum one working day, with no minimum subscription for financing entities. With respect to the retention limit in case of over subscription, the same has been fixed at five times of base issue size, the same is the maximum limit.  On July 3, 2023, SEBI came up with the 2nd Amendment to the NCS Rules where it introduced the concepts of General Information Document (GID) and Key Information Document (KID) in order to serve the purpose of avoiding repetition in filings of documents by the

[By Nikita Singh & Aishana] The authors are students of Gujarat National Law University.   Introduction In the dynamic landscape of India’s financial sector, the persistent challenge of stressed loans has prompted regulatory interventions and innovative strategies to revitalize the economy and banking system. The exploration from Asset Reconstruction Companies (ARCs) to the emergence of Special Situation Funds (SSFs) as a specialized avenue for addressing the complexities of stressed assets meticulously designed to inject capital and release funds entangled in stressed loans within Banks and NBFCs. The blog navigates through the unique role of SSFs in the resolution and recovery of stressed loans and sheds light on the recent proposed amendments by the RBI in the consultation paper released by the Securities and Exchange Board of India (SEBI) and their potential impact on SSFs, investors, and the broader financial ecosystem. Unveiling the challenges and implications, this exploration aims to provide a comprehensive understanding of the regulatory framework surrounding SSFs and their pivotal role in fostering financial stability and efficient resolution mechanisms. Stressed Loan Conundrum: Evolution from ARCs to Special Situation Funds India grapples with a prolonged issue of stressed loans, significantly impacting the banking system and the economy. The Reserve Bank of India (RBI) reports a surge in the gross Non-Performing Assets (NPAs) ratio of Scheduled Commercial Banks (SCBs) from 3.8% in March 2015 to 11.5% in March 2018.[1] The stressed loan ratio, encompassing NPAs and restructured loans, reached 12.6% as of June 2021, with the total stressed loans in SCBs exceeding Rs 93,240 crore by September 2020. In response to this challenge, Asset Reconstruction Companies (ARCs) were established, supported by frameworks like the one in 2014 for revitalizing distressed assets, the 2015 Strategic Debt Restructuring Scheme, the 2016 Scheme for Sustainable Structuring of Stressed Assets,[2] and the 2018 Revised Framework for Resolution of Stressed Assets. ARCs, mandated by the RBI and governed by the SARFAESI Act, 2002, aimed to acquire stressed assets from financial institutions for resolution and recovery. However, hindered by capital constraints, funding issues, market illiquidity, valuation gaps, and legal and operational challenges, ARCs encountered limitations in effectively addressing the complexities of stressed loans. Special Situation Funds: A Specialized Approach to Stressed Asset Resilience Special Situation Funds (SSFs), a sub-category of Category I Alternative Investment Funds (AIFs) regulated by the Securities and Exchange Board of India (SEBI), exclusively focus on stressed assets. These assets include securities from investee companies whose stressed loans are acquired either through the RBI Master Directions on Transfer of Loan Exposures or an approved resolution plan under the Insolvency and Bankruptcy Code, 2016 (IBC). Unlike Asset Reconstruction Companies (ARCs), which acquire stressed assets from banks, SSFs invest in the securities of these companies. Classified under Category I AIFs, which target socially or economically desirable sectors, SSFs offer flexibility in their investment approach,[3] allowing them to engage in equity and equity-linked instruments of investee companies, as well as Security Receipts (SRs) issued by ARCs[4]. This flexibility, along with the ability to act as resolution applicants under the IBC, positions SSFs to bring in capital, expertise, and diverse strategies, facilitating improved price discovery, valuation, and reducing the burden on lenders. This distinctive role enables SSFs to complement and supplement the efforts of ARCs and other resolution applicants in addressing the challenges associated with stressed assets.[5] SEBI-RBI Synergy: The Framework for Special Situation Funds Special Situation Funds (SSFs), a distinctive category of Alternative Investment Funds (AIFs), operate in the domain of securities for companies undergoing financial distress or insolvency resolution. Regulated by both the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI), SSFs must comply with stringent regulations outlined by these authorities. Classified as a sub-category under Category I AIFs by SEBI, SSFs adhere to guidelines specified in the SEBI (Alternative Investment Funds) Regulations, 2012, and the SEBI circular dated 27 January 2022, governing eligibility, investment, transfer, monitoring, and supervision norms. Simultaneously, the RBI, through its Master Directions on Transfer of Loan Exposures and Prudential Framework for Resolution of Stressed Assets, delineates criteria, valuation, disclosure, and prudential norms for loan transfers from financial institutions to SSFs. However, a critical condition for SSFs to acquire stressed loans under RBI Master Directions is their inclusion in the Annex, a list of entities permitted by lenders for transferring stressed loan exposures. Despite the condition outlined in SEBI’s circular dated 27 January 2022, yet to be acknowledged by the RBI, the SEBI Consultation Paper highlights multiple suggestions for changes in the regulatory framework for SSFs, emphasizing eligibility criteria, valuation methodology, disclosure requirements, and prudential norms. Proposed Amendments: Enhancing AIF Regulations for Special Situation Assets and Oversight SEBI’s Consultation Paper, released on 28 November 2023, outlines crucial amendments to the regulatory framework for Special Situation Funds (SSFs).[6] The proposed amendments encompass key areas, starting with the definition and scope of Special Situation Asset (SSA), including it within the permissible investment scope for SSFs with specified conditions. Notably, the eligibility criteria for SSFs and their investors are under scrutiny, with proposals allowing SSFs with prior investments in stressed companies’ securities to acquire stressed loans, provided it aligns with regulatory guidelines. It emphasizes adherence to Section 29A of the IBC to ascertain investor eligibility, advising SSFs to refrain from investing in or acquiring SSA if any investors are disqualified under Section 29A of the IBC. Further, the proposed amendments explicitly bar SSFs from investing in their related parties, as per the Companies Act, 2013, defining related parties for SSFs as entities sharing common investors, directors, key managerial personnel, or sponsors with the SSF or its manager. Moreover, the minimum holding period for SSFs to retain SSA is set at one year, contingent upon the resolution of the stressed company. Moreover, SSFs can only transfer or sell SSA to entities enlisted in the Annex of the RBI Master Directions, subject to lender and resolution professional approval. To enhance transparency and oversight, the paper mandates SSFs to submit pertinent information to a designated trade reporting platform, including details

[By Aryan Dama] The author is a student of Maharashtra National Law University, Mumbai. Introduction – The Process and The History In August 2023, the Securities and Exchange Board of India (‘SEBI’) floated a consultation paper to review voluntary delisting norms under the SEBI (Delisting of Equity Shares) Regulations, 2021 (the ‘Regulations’). Under the Regulations, to delist a company, the acquirer must provide an exit opportunity to all public shareholders of the company at a price discovered using the reverse book building process (‘RBB’). The RBB process begins with the calculation of a floor price in accordance with the Regulations. The acquirer can also provide an indicative price, which must be higher than the floor price. Second, public shareholders are required to tender their shares in favor of the acquirer through stock exchanges. If the shareholding of the acquirer does not cumulatively reach 90% (acquirer’s shareholding + shares tendered by the public shareholders in the acquirer’s favor), then the delisting is failed. Third, if the cumulative shareholding of the acquirer does reach 90% then a discovered price is determined based on eligible bids by the public shareholders. Fourth, the acquirer has the option to either accept (which would mean that the acquirer has agreed to buy the shares at the discovered price) or reject the discovered price. If the acquirer rejects the discovered price, then it can give a counteroffer at a price not less than the floor price. Fifth, the shareholders are allowed to tender their shares at the counter-offer price. If the post-counter-offer shareholding of the acquirer reaches 90%, then the delisting is successful. India is the only country that follows the RBB process. The RBB process was adopted in 2003. It was felt that the exit price offered under the fixed-price process then did not justify company fundamentals and its true worth. Moreover, minority shareholders felt compelled to sell their shares at the offered exit price, even if it was not attractive enough, or else they held a potentially illiquid stock. Thus, the RBB process was adopted – to harmonize the interests of the acquirers and shareholders. However, the RBB process has been far from successful prompting SEBI to keep making amendments to the delisting regulations from time to time. The changes proposed in the consultation paper are the latest slew of changes proposed to the Regulations, hopeful of ensure a smooth delisting of companies. Practical inefficiency of the RBB process Year Name of Company Floor Price (₹) Discovered Price (₹) Premium Public Shareholding Comments 2023 Shreyas Shipping & Logistics Ltd. 375 (indicative) 870 138.35% 29.56% Discovered price rejected. Counter offer of ₹400.   TTK Healthcare Ltd. 1,201.30 – – 25.44% Insufficient tender by public shareholders.   R Systems International Ltd. 262 – – 47.4% Insufficient tender by public shareholders. 2022 Universus Photo Imagings Ltd. 567.43 1,500 164.34% 25.45% Discovered price rejected by acquirer.   Jindal Photo Limited Ltd. 268.04 – – 27.28% Insufficient tender by public shareholders.   Xchanging Solutions Ltd. 39.23 – – 25% Insufficient tender by public shareholders. 2021 Shyam Telecom Limited Ltd. 6.15 – – 33.84% Insufficient tender by public shareholders.   Brady and Morris Engineering Company Ltd. 61.04 750 1128.70% 26.25% Discovered price rejected by acquirer. 2020 Vedanta Ltd. 87.25 – – 49.87% Insufficient tender by public shareholders.   Hexaware Technologies Ltd. 264.97 475 79.27% 37.92% Successful but at high premium. As evident, the two main causes of the failure of the RBB process are i) insufficient tender by public shareholders and ii) unrealistically high discovered price. Insufficient tender by public shareholders and high discovered price bring the delisting process to the end as the 90% threshold is not met or the discovered price is rejected by the board of directors of the respective company.  Thus, these two issues are the premise upon which SEBI has proposed the changes in the consultation paper. But before we move ahead to discuss the proposed changes, I think it is important to understand some inherent issues in the RBB process to truly appreciate the proposed changes. Fundamental problems with the RBB Process The RBB process is restricted to very limited participants – the public shareholders. Let us juxtapose the RBB process with the booking building (‘BB’) process used in an initial public offering. The BB process is open to the entire market, allowing for forces of demand and supply to operate freely. Since the sample size is so big, it results in a relatively fair price discovery. However, since the RBB process is open only to the public shareholders of the delisting company, the forces of demand and supply are not able to operate freely. Since the sample size is small, the determination of the discovered price is prone to manipulation by shareholders. Thus, the RBB process fails. Further, the exit price should be suggestive of the price the buyer is willing to pay. In the RBB process, the only reference points for the shareholders are the floor price and/or the indicative price. It is important to understand that neither of these prices is an actual representation of the price the acquirer is willing to pay for the strategic value of the company. This was also acknowledged by SEBI in the form that delisting without the knowledge of what the acquirer is willing to pay leads to a lot of speculation. This lack of information is a double-edged sword as it creates a scenario where the shareholders can either squeeze out the maximum price from the acquirer based on the idea that the acquirer might be willing to pay more, or it results in exploitative amounts of premium being sought. The uncertainty also causes the public shareholders to not tender their shares at all. These fundamental conceptual issues related to the RBB process along with the practical efficiency of the RBB proves as understood in the case studies prompted  SEBI to propose the changes in the voluntary delisting norms through the consultation paper. Solutions Proposed in the Consultation Paper As a part of the

[By Vanshika Singh] The author is a student of Jindal Global Law School.   Introduction Ministry of Finance and Ministry of Corporate Affairs have been in the news lately as the discussion on listing of Indian equity on foreign stock exchanges is gaining traction. They have announced that the much-awaited framework for direct listing of Indian companies abroad could be introduced later this financial year. It is notably a significant development for the Indian companies as their exposure and opportunities to raise funds in the capital markets is going to expand at a global level. This international exposure brings with itself the need to balance certain pros and cons that the companies must be ready to explore wisely. Present Means of Raising Funds Internationally Currently, fund raising by Indian entities can be done in primarily three ways. Firstly, by raising debt in global markets by listing their debt securities via various bonds like masala bonds, foreign currency convertible bonds, etc. Second, by way of issuing depository receipts such as by issuing American Depositary Receipts (“ADR”) or Global Depository Receipts (“GDR”). This is an indirect way of listing on a foreign exchange by entering into an arrangement with a recognised depository facility in the relevant jurisdiction. Another way of issuing equity shares abroad is doing Regulation S (“Reg S”) and Rule 144A offerings under U.S. Securities Act, 1933. Doing a public issue under Rule 144A requires registration on the relevant foreign stock exchange and adherence to heavy reporting standard in such jurisdiction. Until 2020, listing of Indian companies on foreign exchanges was not permitted let alone standardized, therefore, this method could not be accessed. However, Rule 144A provides an exemption to such registration by allowing private placement of securities to only sophisticated investors, i.e., qualified institutional buyers (“QIBs”) in the U.S. and not the retail investors. The rationale behind the same is that sophisticated investors are resourceful and diligent enough to know the risk of entering an investment, and thereby need little regulation. On the other hand, Reg S offering is done outside the U.S. that allows Indian companies to tap primarily into the European markets such as London or Luxembourg Stock Exchange. An important difference between these two types of offerings is that the Rule 144A route requires higher disclosure and due diligence as compared to the Reg S route. The former requires a negative assurance letter, also known as the Rule 10b-5 letter, from the issuer’ or issuer’s lawyers. It provides a confirmation that nothing has come to their attention that gives them a reason to believe that the statements in the offering documents are untrue or inaccurate. This is a higher diligence standard than what is currently followed in the Indian market and places a higher liability on the entities such as law firms and merchant bankers who may issue such a letter. Proposed Change The buzz about this change started way back in 2018 when Securities and Exchange Board of India (‘SEBI’) released its expert committee report for public comments. Amongst other things, the expert committee scrutinized the economic effects of this change on the country and Indian companies. Additionally, they discussed various legal, operational and regulatory nitty-gritties that require a rehaul to implement this change and facilitate Indian companies in listing their equity share directly on foreign stock exchanges. It was clarified in the report that in case of unlisted Indian companies seeking to list aboard, the laws of foreign jurisdictions pertinent to listing will apply while ensuring compliance with Companies Act, 2013 (“Companies Act”). With respect to companies listed in India seeking to list abroad, the companies can expect to continue compliance with the relevant laws they are subjected to India and in case of variation, a comparative analysis of compliance is to be provided by such company. Such onerous requirements can inevitably result in longer timelines for conclusion of raising capital via this method. In late 2020, MCA, via the Companies (Amendment) Act, 2020 (“Amendment Act”), passed an amendment to S. 23, amongst other sections of the Companies Act to permit a particular class of public companies to list their securities abroad in permissible foreign jurisdictions or jurisdictions as may be prescribed. The permissible jurisdictions include Japan, China, U.S., South Korea, United Kingdom, Hong Kong, France Germany, Canada and Switzerland. This has been a momentous development because India’s current legal framework prohibits the direct listing of equity shares of domestically incorporated companies on international stock markets. Since the Amendment Act was passed in 2020, various provisions of the same have been notified from time to time but the amendment to S. 23 has not been notified yet. In light of the same, MCA and SEBI are proposing to introduce the much-awaited framework later soon to this allow such foreign listing. Expected Impact of this Change This much awaited change will not only result in increase in competitiveness for Indian companies but also bring better valuation to companies, increase and diversify the investor base, and most importantly provide an alternate source of capital for Indian companies. Moreover, companies that want to list their securities on international stock exchanges with sophisticated expertise and resources can expect to receive more accurate valuations for their assets as compared to the current valuations in India. This is because it will expose them to niche investors who have sectoral and institutional expertise, and are therefore better equipped to assess such shares on its own merit and also comparatively. The ability of Indian businesses to access larger, more diverse pools of money and cheaper costs of capital will serve to bolster their competitiveness in industries like technology and internet sectors where this change will lead to strategic advantages by overlooking geographical distances. Additionally, having more foreign investors on board may invite more robust international corporate governance practices, induce maximization of efficiency and fast-paced innovation to catch up with global competitors. It will also encourage embracing best practices, international cooperation and improve peer to peer benchmarking. At the same time, cross-listing may make

[By Dhrutvi Modi & Harshit Chauhan] The authors are students of Gujarat National Law University. INTRODUCTION In recent years, the Indian real estate market has grown significantly, with Real Estate Investment Trusts (REITs) playing a crucial role in attracting investments. Introduced in India in 2014 to enable small investors to access the real estate market, the market has been primarily dominated by large-scale REITs due to high investment thresholds, restricting opportunities for small and medium-sized investors. In August 2020, SEBI proposed Micro, Small, and Medium REITs (MSM REITs) to address the limited investment opportunities for small and medium-sized investors in real estate. These REITs offer lower investment thresholds, providing capital sources for real estate developers and reducing reliance on traditional financing. Recently, in May 2023, SEBI released the regulatory framework for MSM REITs, aiming to stimulate the Indian REIT market’s growth by broadening investor participation and expanding financing options for developers. This article provides an analysis of the regulatory framework for MSM REITs released by the SEBI. The article evaluates the proposals put forth by the regulatory framework and assesses their potential impact on the REIT market in India. The article also examines the challenges faced by the REIT market in India, including high tax rates, limited availability of quality assets, and the need for regulatory clarity. It analyses how the regulatory framework for MSM REITs aims to address these challenges. ISSUES FACED DUE TO LACK OF PROPER REGULATION Lack of uniformity in disclosures – non-uniform disclosures on Fractional Ownership Platforms (FOPs) raise concerns due to involvement of non-institutional investors and untested real estate mechanisms. More transparency and oversight are needed, leaving investors with limited legal recourse for potential issues. Lack of assurance – FOPs issue unlisted securities for real estate investments, but they may not provide adequate exit information or liquidity options, which is unfavourable for investors’ long-term interests. Unclear claims of succession and inheritance after lapse of Power of Attorney (POA) – FOPs enabling joint real estate ownership through POA structures impose binding liabilities on the FOP and raise concerns about valuation, liquidity, transparency, and potential misuse of POAs. Investor’s death, insolvency, or bankruptcy may lead to POA lapses, exposing other owners to succession and inheritance claims on the stake of the deceased or insolvent investor. No application of Know Your Customer (KYC) and Anti-Money Laundering (AML) norms – The absence of financial sector regulation for FOPs means that they often do not adhere to KYC and AML norms. This non-alignment with Prevention of Money Laundering Act, 2002 and financial regulator’s KYC requirements leads to inconsistent customer identification practices, raising risks of identity misuse, fund source concealment, and money laundering, thereby posing a threat to the financial system. Absence of standardized grievance redressal mechanism – FOPs lack standardized grievance redressal mechanisms, each with its own policies that may not favour investors. Even if some FOPs are registered with state-level RERA as real estate agents, this registration does not imply comprehensive regulation of the FOP and its activities by RERA, leaving investor interests potentially unaddressed. Non-uniform selling practices – non-uniform selling practices and lack of independent valuation could lead to investors falling prey to mis-selling. REGULATORY FRAMEWORK FOR FOPs IN OTHER COUNTRIES United Kingdom In the UK, key regulations for fractional ownership include the Companies Act 2006, which mandates registration and reporting to Companies House, board of directors, and corporate governance standards. The Financial Services and Markets Act 2000 (FSMA) requires authorization from the Financial Conduct Authority (FCA) for public offerings, with FCA oversight and enforcement powers for non-compliance. There is a stamp duty land tax (SDLT) payable on purchasing the fractional interest in the property. The amount of SDLT depends on the purchase price of the property and the percentage interest being acquired. The rate of SDLT is generally 0.5%, but higher rates apply to second homes and buy-to-let properties. There may be ongoing tax liabilities associated with fractional interest ownership as well. When selling the fractional interest in the property, capital gains tax (CGT) may be payable on any profit made. CGT is charged on the gain made on the sale, calculated as the difference between the sale and purchase prices, deducting any allowable expenses. The CGT rate is determined by an individual’s overall taxable income and gains for the tax year, and it can vary between 10% and 28%. Hong Kong Real estate investment trusts (REITs) are collective investment schemes set up as unit trusts in Hong Kong. They are listed on the Hong Kong Stock Exchange and invest primarily (at least 75% of their gross asset value) in real estate assets that generate income. The purpose of REITs is to give investors returns resulting from ongoing rental revenue. A REIT Code and other guidelines on the authorization and management of REITs have been released by the Hong Kong Securities and Futures Commission. According to the REIT Code, REITs can only invest in vacant land if certain conditions are met, and they can only engage in property development activities if certain conditions are fulfilled. Additionally, REITs can borrow up to 50% of their gross asset value. REITs must pay their investors a dividend equal to at least 90% of their annual audited net income after taxes. United States of America The United States Securities and Exchange Commission (SEC) oversees the trading of securities in the country. Fractional ownership is classified as a security based on the criteria set forth in the Howey test, which was established by the US Supreme Court in the case of SEC v. W.J. Howey Co. Fractional ownership is typically sold as a security offering, which must be registered with the SEC unless an exemption applies. One standard exemption is for private placements of securities to accredited investors or investors who meet certain income or net worth thresholds. California has specific regulations for real estate fractional ownership, including disclosure requirements and provisions for escrow accounts to hold funds from investors. The state also requires fractional ownership interests to be sold through

[By Anchal Raghuwanshi] The author is a student of Dharmashastra National Law University, Jabalpur.   INTRODUCTION Financial framework of a country represents the strong and efficient capital market inviting investors from around the world. The need for addressing disputes related to securities market has become crucial in order to have an effective capital market structure in the country. Investors who have suffered because of the mistakes of unscrupulous works of certain market players deserve a dispute resolution and complaint management system that is accessible, swift, and fair. Acts such as these not only reduce investor confidence but also affect India’s position at the global level. A strong and efficient dispute resolution will guarantee effective capital market operations. While creating laws and regulations, SEBI’s main objective is to govern and oversee the Indian commodity and securities markets. The regulatory framework of SEBI covers a wide spectrum of market participants, including listed businesses, stock exchanges, brokers, and investment advisers. The new ODR approach is poised to make resolving disputes more effective and affordable. ODR, which can be done online or in person, leverages technology to help the parties communicate and negotiate. This would increase the effectiveness and efficiency of India’s system for resolving investor disputes and increase its appeal to foreign investors. The objective of this paper is to look into the various facets of India’s Securities and Exchange Board’s dispute resolution process. COMPLAINT MANAGEMENT SYSTEM OF SEBI In June 2011, SEBI established the ‘SCORES’ centralized web-based complaints resolution system. The goal of SCORES is to provide an administrative venue for dissatisfied investors whose securities market issues have not been handled by the relevant listed company registered intermediary, or recognized market infrastructure institutions.[1] It accepts complaints arising from issues covered by the Securities and Exchange Board of India Act, 1992, the Depositories Act, 1996, the Securities Contract Regulation Act, 1956, the Companies Act, 2013, and rules and regulations made under the aforementioned acts.[2]The SCORE system emphasizes investor advocacy since investors can contact SEBI directly before exhausting other routes of redress. Complaints filed on SCORES are subject to a three-year limitation period from the date of the complaint’s causation date. In a circular dated March 26, 2018[3], investors were instructed to first address their concerns with the relevant firm before approaching SCORES. According to master circular dated November 07, 2022, the business must file the ATR within 30 days.[4]If an investor is dissatisfied with the entity’s settlement or the entity has not produced an Action Taken Report within 30 days, the issue escalates to SEBI and is addressed by a SEBI Dealing Officer[5]. When investors file a complaint with SCORES, they provide confirmation of the same by self-declaration. A sample research was conducted to determine if investors are approaching businesses first before self-declaring. It has been discovered that around 42% of investors who stated that they approached the business first, really approached SCORES directly[6]. The Dealing Officer will review the ATR upon receipt and, if satisfied, will close the complaint with reasoned closure remarks. If the Dealing Officer is dissatisfied, he may request explanation from the entity and/or the investor. A complaint is considered resolved/disposed/closed only when SEBI disposes/closes the complaint on SCORES. Once the complaint has been resolved, the investor has the ability to request a review within 15 days if he or she is dissatisfied with the resolution of the complaint.[7] The Division Chief of the concerned Dealing Officer, who handled the usual complaint, handles the review complaint. “Review complaints” are the name given to these types of complaints.[8] ARBITRATION MECHANISM In line with the terms of the Circular of 11 August 2010[9], read with Section 2(4) of the Arbitration and Conciliation Act, 1996[10], SEBI provides for an arbitration procedure for settling disputes between customers and members. Age, credentials, and expertise in financial services are all taken into account while forming the panel of arbitrators. When opposed to the usual filing of lawsuits in courts, conflict resolution through arbitration is a more cost-effective way of ADR. If an investor has an account with a Depository participant or a broker, he or she has the option of settling disputes through Arbitration under the SCORES process. If a Stock Exchange or Depository fails to resolve an investor’s grievance due to a disagreement, the investor may petition for Arbitration under the rules and regulations of that Stock Exchange or Depository. All disputes, claims, or disagreements between investors and stock brokers or Depository participants can be resolved through the Arbitration system. The steps for Stock Exchange Arbitration are summarised below: First, the Applicant files an Arbitration application to a Stock Exchange; the application is then verified and delivered to the Respondent. Following that, an Arbitrator is selected, and all papers are delivered to the Arbitrator; the Arbitrator then hears both parties’ contentions and issues the award. If a party is dissatisfied, he or she may submit an appeal. Following that, the appeal hearing is held, and the ultimate award is made. The time restriction for submitting arbitration claims is three years. A single arbitrator will hear an arbitration reference for a claim/counterclaim up to Rs 25 lakhs, while a panel of three arbitrators will hear claims beyond Rs 25 lakhs. The appointment of arbitrators should be completed within 30 days of the applicant’s application being received. Within four months after the appointment of arbitrators, the arbitration shall be finished by issuing an arbitral award. The arbitration facility must be provided at SEBI-designated arbitration centers.[11]Furthermore, if any party to the arbitration is unsatisfied with the award, the party may submit an appeal against the judgement through the Stock Exchange’s Appellate process. Also, Chapter 15 of the Model Bye Laws of the Stock Exchange[12] contains procedures for resolving securities disputes through the Arbitration and Conciliation process. As part of the Bye Laws, the provisions of the Arbitration and Conciliation Act of 1996 apply. ONLINE DISPUTE RESOLUTION SYSTEM The proposal to implement an ODR system and extend it to all registered intermediaries in the securities market was