The Securities and Exchange Board of India (SEBI), which regulates the securities market in India, recently implemented a very important regulatory amendment by repealing some of the circulars that provide guidelines on the issuance of securities. CIR/CFD/DIL3/18/2015 circular, dated December 31, 2015, and CFD/DIL3/CIR/P/2016/53 circular, dated May 03, 2016, have formulated guidelines for companies offering securities to more than 49 but up to 200 investors in a financial year.[1] On the other hand, the SEBI's move to revoke these circulars reflects its dynamic regulatory approach towards the changing legislative regime and the dynamic financial sector.
The first circulars mentioned were initially issued to handle cases under the Companies Act, 1956 which laid down the rules for the issue of security under a particular financial year. These circulars gave companies a means of avoiding the penal action if they afforded investors the option to surrender securities and receive a refund with interest. This provision was most relevant since most of the amendments made to the Companies Act, 2013 increase the cap for private placement.
Nevertheless, in view of the revision of the law and the annulment of the Companies Act, 1956, SEBI considered it appropriate to reevaluate the effectiveness of these circulars. Using the powers granted under section 11(1) of the Securities and Exchange Board of India Act, 1992, SEBI moves to protect the interests of investors and maintain the well-functioning of security markets. Therefore, it is going to nullify the aforesaid circulars, which will be effective six months from the date of the circular informing the public about the repeal.
The possibility for the companies to use the new regulations will be available for those who have fulfilled all the conditions and submitted the required documents within the specified time period. Going into the future, cases that involve issuing securities exceeding the limit that investors are allowed to invest in a financial year will be handled in accordance with existing legislation and regulations.
SEBI is the central regulator in India that continues to play a critical role in protecting investor interests and fostering an open and robust securities market environment. While the regulatory regime changes continually, stakeholders should always be alert to any changes and be responsive to regulatory developments.
The SEBI's decision to repeal the circulars linked to securities issuance is a sign of its intention to adapt the regulations in a way that complies with the changing legislative mandates and the market dynamics. The regulator rescinds the outdated guidelines with the intention of bringing more clarity and coherence into the regulatory framework by ensuring that the reforms are in conformity with the existing statutory provisions. This regulatory reform stresses the need for regulatory agility which is important to preserve the integrity and the efficiency of India's securities markets.
[1] https://www.sebi.gov.in/legal/circulars/mar-2024/repeal-of-circular-s-outlining-procedure-to-deal-with-cases-where-securities-are-issued-prior-to-april-01-2014-involving-offer-allotment-of-securities-to-more-than-49-but-up-to-200-investors-in-a-_82230.html
