News Alert: SEBI Circular and Judicial Pronouncement

October 08, 2020

Securities and Exchange Board of India (SEBI):

SEBI releases a framework to monitor foreign holding in depository receipts

Under the framework, a listed company will appoint one of the Indian depositories as the designated depository for the purpose of monitoring of limits in respect of depository receipts. The designated depository in co-ordination with domestic custodian, other depositories and foreign depository (if required) will compute, monitor and disseminate the Depository Receipts' (DRs) information as prescribed in the framework. Further, the information will be disseminated on the websites of both the Indian depositories. For this purpose, the designated depository will act as the lead depository and the other depository shall act as a feed depository. The investor group may appoint one Foreign Portfolio Investor (FPI) to act as a nodal entity for reporting such grouping information to its Designated Depository Participant (DDP) in the prescribed format. Similarly, the FPIs who do not belong to the same investor group would report such investment holding details to their custodian on a monthly basis. However, in respect of FPIs which do not belong to the same investor group, responsibility of monitoring the investment limits of FPI will be with the respective DDP or custodian.

Judicial Pronouncement:

The disqualified director cum promoter can continue to act in the capacity of promoter to nominate any other person as a director under Section 167(3) of the Companies Act, 2013 to apply under the Companies Fresh Start Scheme (CFSS), 2020

Fact of the case: The Petitioner No.1 is both director & promoter of the company and Petitioner No.2 is an erstwhile director who have been disqualified. Due to the disqualification, they cannot apply under the CFSS 2020. Hence, seek a direction that they may be permitted to apply under the Scheme and for the said purpose their Director Identification Number (DIN) should be activated.

The Respondent submitted that for the Company applying under the Scheme, the DIN of the Petitioners is not required to be activated as there is a provision under Section 167(3) of the Companies Act 2013 itself which will serve the same purpose.

Judgment: The court held that even though the directors of the company vacated their offices, if a person is acting in the capacity of director cum promoter and is disqualified as a director, he can continue to act in the capacity of a promoter to nominate any other person as a director. Hence, in the capacity of promoter, the Petitioner can nominate any person as a director and follow Section 167(3) of the Companies Act, 2013 to apply under the CFSS 2020. Therefore, it is not necessary to issue any further directions in this regard. This course of action is, available to the Petitioner/s regarding the Scheme.

Last updated: 8th Oct 2020 Article contributed by: Munesh Gaur Senior Associate MBG Corporate Services

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