Mumbai, March 23 The Securities and Exchange Board of India (Sebi) board on Monday approved a proposal for a comprehensive overhaul of the "fit and proper person" framework for market intermediaries to bring greater procedural clarity and fairness to the regulatory process.
The proposal includes removing the automatic disqualification triggered by the filing of First Information Reports (FIRs), complaints, or charge sheets in economic offence cases.
"The rule-based criteria of pendency of a criminal complaint / FIR filed by Sebi or a charge sheet concerning economic offences shall, by itself, not be a ground for automatic disqualification. However, the existing principle-based criteria shall apply on a case-by-case basis," the regulator said.
Sebi said that the existing disqualification upon conviction for an offence involving moral turpitude will be expanded to include conviction for any economic offence or any offence under securities law.
The approved amendments seek to appropriately balance the regulatory objective of principle-based criteria that only persons with "integrity, honesty, ethical behavior, reputation, fairness, and character operate in the securities market" and the need to ensure ease of doing business by market participants.
Sebi said that the initiation of winding up proceedings as a ground for disqualification will be omitted. However, the existing provision of disqualification upon an order of winding up shall remain.
"The applicant/intermediary shall be required to inform Sebi within 15 working days of the recognised stock exchanges of any event ...involving itself, its KMPs (Key Management Personnel) or persons in control," Sebi said.
Also, Sebi is looking to explicitly include the right to a hearing in the regulations. Although the practice of giving a reasonable opportunity of being heard already exists, the board decided to state it clearly in the rules to remove any procedural ambiguity.
Accordingly, a person can be declared 'not fit and proper' only after being given a reasonable opportunity of being heard.
The regulator decided to remove the default five-year ineligibility period for applying for registration when no time period is specified in Sebi's order. Going forward, the ineligibility will apply only for the period mentioned in the order.
In addition, the period during which a registration application is not considered after issuing a show-cause notice (SCN) is proposed to be reduced from one year to six months, to avoid prolonged uncertainty for applicants.
To promote ease of doing business, the board approved amendments to the norms governing InvITs (Infrastructure Investment Trusts) and REITs (Real Estate Investment Trusts).
Currently, a special purpose vehicle (SPV) under an InvIT is required to invest at least 90 per cent of its assets in infrastructure projects. Upon the conclusion of the concession agreement, the infrastructure project in the SPV ceases to exist.
However, the InvIT may have to continue holding investments in such SPV since an immediate sale or winding up may not be practically possible due to pending claims, litigations, tax assessments, the defect liability period under the concession agreement, etc.
To address this issue, InvITs will be permitted to continue to hold investments in SPVs post conclusion or termination of the concession agreement. InvITs will be required to either exit investment in such SPV or acquire a new infrastructure project in such SPV within one year from the later of completion of concession agreement, or conclusion of pending claims/litigations, or completion of defect liability period, Sebi said.
The one-year time period will exclude the time taken to obtain relevant statutory or regulatory approvals for exiting the investment in such an SPV. Furthermore, the InvIT will make adequate disclosures regarding investment in such SPV in its annual report.
To provide additional investment options for temporary deployment of funds by InvITs and REITs and to mitigate concentration risk, InvITs and REITs will be permitted to invest in units of liquid mutual fund schemes.
To align the investment norms for privately listed InvITs with publicly listed InvITs with respect to investment in greenfield infrastructure projects, privately listed InvITs will be permitted to invest up to 10 per cent of the value of their assets in greenfield infrastructure projects.
Sebi said that InvITs with leverage exceeding 49 per cent and up to 70 per cent of the value of their assets will be allowed to avail fresh borrowings for capital expenditure, major maintenance expense for road project and refinance of existing debt, which was originally utilised for permitted purposes subject to the condition that only the principal portion of the debt is refinanced.
Currently, such InvITs are allowed to undertake fresh borrowings only for the acquisition or development of an infrastructure project.
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