Power to Relax Strict Enforcement & Miscellaneous

Regulation 31A. Exemption from enforcement of the regulations in special cases.

31A (1).

• Power of SEBI to Grant Exemptions for Regulatory Sandbox

  • This provision gives power to Securities and Exchange Board of India.

  • SEBI may grant exemptions from the provisions of these regulations.

  • The exemption can be given to any person or a class of persons.

  • The exemption may apply to all or only certain provisions of the regulations.

  • Such exemption is time-bound.

  • It can be granted for a period not exceeding 12 months.

  • The purpose of such exemption must be to further innovation in the securities market.

  • It is specifically aimed at allowing testing of new products, processes, services, or business models.

  • This testing takes place in a live market environment under a regulatory sandbox framework.

  • The idea is to allow experimentation while still being regulated and monitored by SEBI.

31A(2).

• (2) Conditional Nature of Exemptions Granted by SEBI

  • This rule applies where an exemption has been granted by Securities and Exchange Board of India under sub-regulation (1).

  • Such exemption is not absolute or unconditional.

  • The applicant must satisfy specific conditions laid down by SEBI.

  • These conditions are determined and specified by SEBI at the time of granting the exemption.

  • The conditions may include requirements relating to conduct, disclosures, safeguards, or reporting.

  • Importantly, some conditions may be required to be complied with on a continuous basis.

  • This means the applicant must ongoingly adhere to the conditions throughout the exemption period.

  • Failure to comply with these conditions may result in withdrawal or consequences under the exemption.

Explanation:

• For the purpose of these regulations, a “regulatory sandbox” refers to a controlled testing environment.

• It is a live environment, meaning real market conditions are used instead of simulations.

• In this environment, new products, processes, services, or business models can be tested.

• The testing is carried out on a limited set of eligible customers, not the entire market.

• It is allowed only for a specified period of time, not indefinitely.

• The main objective is to encourage innovation in the securities market.

• Such testing is not completely free; it is subject to conditions specified by Securities and Exchange Board of India.

• These conditions ensure that experimentation happens in a controlled and supervised manner.

Regulation 32. Power to Issue Directions

31(

• (a) Power of SEBI to Direct Divestment of Shares

  • This provision gives wide powers to Securities and Exchange Board of India to protect investors and the securities market.

  • These powers are in addition to its powers under Chapter VIA and Section 24 of the Act.

  • SEBI can issue directions or orders under Sections 11, 11B, or 11D of the Act whenever necessary.

  • One such direction is under clause (a), which deals with shares acquired in violation of the regulations.

  • If any person acquires shares in breach of the takeover regulations, SEBI can direct that such shares be divested.

  • The divestment can be carried out through different methods:

    • Public auction

    • Sale in the open market

    • Offer for sale (OFS) under the relevant SEBI regulations

  • SEBI can also direct the appointment of a merchant banker to manage this divestment process.

• (b) Direction to Transfer Shares or Sale Proceeds to IPEF

  • This provision empowers Securities and Exchange Board of India to take further action where shares are acquired in violation of the regulations.

  • SEBI may direct that such shares themselves be transferred, or

  • SEBI may direct that the proceeds from the sale of such shares be transferred.

  • The transfer is made to the Investor Protection and Education Fund (IPEF) established under SEBI regulations.

  • This applies particularly where shares have been illegally acquired and subsequently divested.

  • The provision ensures that the violator does not retain any benefit from the wrongful acquisition.

  • Instead of allowing unjust enrichment, the value is redirected to a fund meant for investor protection and education.

• (c) Direction to Block Transfer of Shares

  • This provision empowers Securities and Exchange Board of India to intervene where shares are acquired in violation of the regulations.

  • SEBI may issue a direction to the target company or any depository.

  • Such direction requires them not to give effect to the transfer of shares.

  • This applies specifically to shares acquired in breach of the takeover regulations.

  • As a result, the transfer of such shares is not registered or legally recognised.

  • This effectively freezes the transfer and ownership rights arising from the illegal acquisition.

  • It operates as a preventive measure, stopping further consequences of the violation.

• (d) Direction to Restrict Voting and Other Rights

  • This provision empowers Securities and Exchange Board of India to act where shares are acquired in violation of the regulations.

  • SEBI may issue directions to the acquirer, persons acting in concert, or any nominee or proxy holding such shares.

  • Such direction can require them not to exercise any voting rights attached to those shares.

  • It also extends to any other rights, such as dividend rights or participation in corporate decisions.

  • This applies specifically to shares acquired in breach of the takeover regulations.

  • As a result, even if the shares are held, the holder is deprived of control and economic benefits.

(e) Debarment from Capital Market for Violations

• This provision empowers Securities and Exchange Board of India to take strict action against persons who violate the regulations.

• SEBI may debar such person from accessing the capital market.

• It may also prohibit them from dealing in securities.

• The debarment can be imposed for a specific period as determined by SEBI.

• The duration is not fixed and depends on the nature and gravity of the violation.

• More serious violations may attract longer periods of restriction.

• This action acts as a punitive as well as deterrent measure.

• It prevents the violator from participating in the securities market during the specified period.

(f) Direction to Make an Open Offer

• This provision empowers Securities and Exchange Board of India to take corrective action where there has been a violation of takeover regulations.

• SEBI may direct the acquirer to make an open offer for acquiring shares of the target company.

• This direction is typically given where the acquirer failed to make a mandatory open offer or did not comply with the regulations.

• The open offer must then be made in accordance with the takeover regulations.

• The offer price is not left to the acquirer.

• It is determined by SEBI based on the applicable pricing provisions under the regulations.

(g) Direction to Restrict Disposal of Assets

• This provision empowers Securities and Exchange Board of India to intervene where there is a risk of deviation from disclosed intentions.

• SEBI may direct the acquirer not to cause disposal of assets of the target company or its subsidiaries.

• It may also direct the target company not to give effect to such disposal.

• This applies where the proposed disposal is contrary to what was stated in the letter of offer.

• The restriction becomes relevant particularly when the conditions under the proviso to Regulation 25(2) are not satisfied.

• In such cases, the acquirer cannot proceed with undisclosed or inconsistent asset sales.

• The direction ensures that the acquirer adheres to representations made to shareholders.

• It prevents post-offer actions that could materially alter the company without proper disclosure or approval.

(h) Direction to Make Delayed Open Offer with Interest

• This provision empowers Securities and Exchange Board of India to act where the acquirer has failed in its open offer obligations.

• It applies in two situations:

  • Where the acquirer failed to make a mandatory open offer, or

  • Where the acquirer delayed making the open offer.

• SEBI may direct the acquirer to make the open offer even at a later stage.

• In addition to making the offer, SEBI can require the acquirer to pay interest along with the offer price.

• The rate of interest is determined by SEBI, based on what it considers appropriate.

(i) Restriction on Future Market Participation for Non-payment

• This provision empowers Securities and Exchange Board of India to act where the acquirer fails to fulfill payment obligations.

• It applies where the acquirer has failed to pay the open offer consideration to shareholders.

• In such cases, SEBI may impose a restriction on the acquirer’s future activities in the market.

• The acquirer may be prohibited from making any new open offer.

• The acquirer may also be restrained from entering into any transaction that would trigger an open offer obligation.

• This restriction applies in respect of shares of any target company, not just the same company.

• The duration of the restriction is decided by SEBI based on the circumstances.

(j) Direction to Pay Interest for Delay in Payment

• This provision empowers Securities and Exchange Board of India to act where there is a delay in payment under an open offer.

• It applies where the acquirer has made the open offer but delayed payment of consideration to shareholders.

• In such cases, SEBI may direct the acquirer to pay interest for the period of delay.

• The rate of interest is determined by SEBI, based on what it considers appropriate.

• The interest is payable in addition to the offer price.

(k) Direction to Cease and Desist from Exercising Control

• This provision empowers Securities and Exchange Board of India to act where control has been acquired in violation of the regulations.

• It applies where any person has acquired control over a target company without complying with takeover requirements.

• In such cases, SEBI may direct such person to cease and desist from exercising control.

• This means the person must stop using or enforcing the control rights obtained.

• The restriction continues until compliance with the regulations is achieved.

• It prevents the person from influencing management or decision-making of the target company.

• The provision acts as a corrective and preventive measure.

(l) Direction to Reduce Shareholding to Permissible Limits

• This provision empowers Securities and Exchange Board of India to act where shareholding exceeds permitted limits.

• It applies where the acquirer and persons acting in concert hold shares beyond the maximum permissible non-public shareholding.

• In such cases, SEBI may direct divestiture of shares.

• The acquirer must sell such number of shares as is necessary to bring the shareholding within the permitted limit.

• The reduction must ensure that the shareholding is at or below the maximum non-public shareholding threshold.

32(2).

• Compliance with Principles of Natural Justice

  • This rule applies when Securities and Exchange Board of India initiates any proceedings under the regulations.

  • Before issuing any directions, SEBI must follow the principles of natural justice.

  • This means the affected person must be given a fair opportunity to be heard.

  • SEBI must ensure no decision is taken without giving notice and allowing representation.

  • The decision-making process must be fair, unbiased, and transparent.

  • SEBI must act without arbitrariness or prejudice.

32(3).

• Action Against Intermediaries for Non-Compliance

  • This provision empowers Securities and Exchange Board of India to take action against intermediaries.

  • It applies where any intermediary registered with SEBI fails to comply with the requirements of these regulations.

  • In such cases, SEBI may initiate appropriate proceedings against the intermediary.

  • The proceedings must be conducted in accordance with the applicable regulations governing such intermediaries.

  • These may include actions under SEBI (Intermediaries) Regulations or other relevant frameworks.

  • The provision ensures that intermediaries are held accountable for their regulatory obligations.

  • It acts as a deterrent against non-compliance by regulated entities.

  Regulation 33. Power to remove difficulties

• Power of SEBI to Issue Clarifications and Guidelines

  • This provision empowers Securities and Exchange Board of India to address practical issues in applying the regulations.

  • It applies where there are difficulties in interpretation or application of any provision.

  • In such cases, SEBI may issue clarifications or guidelines from time to time.

  • These clarifications help in explaining ambiguous provisions.

  • The guidelines assist in ensuring uniform and consistent application of the regulations.

  • This power allows SEBI to adapt and respond to evolving market situations.

Regulation 34. Amendment to other regulations.

• Amendment of Regulations as per Schedule

  • This provision deals with amendments to certain regulations specified in the Schedule.

  • It states that such regulations shall be modified as laid down in the Schedule.

  • The amendment is not general but applies only in the manner specified.

  • It also applies only to the extent mentioned in the Schedule, not beyond it.

  • This means the Schedule acts as a detailed guide for how and what changes are to be made.

  • The main regulation simply gives effect and authority to those changes.

  • The purpose is to incorporate specific amendments in a structured and precise way.

Regulation 35. Repeal and Savings.

35(1)

• This provision deals with the replacement of the old takeover regulations.

• The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 are repealed.

• The repeal takes effect from the date the new regulations come into force.

• This means the 1997 regulations cease to have legal effect from that date onwards.

• All takeover-related matters are thereafter governed by the new set of regulations (2011 Regulations).

35(2).

• (a) Saving of Past Actions Despite Repeal

  • This provision applies despite the repeal of the earlier takeover regulations.

  • It ensures that past actions taken under the old regulations remain valid.

  • Any action done or taken before the repeal is not invalidated.

  • This includes:

    • Comments on any letter of offer

    • Exemptions granted by Securities and Exchange Board of India

    • Fees collected

    • Adjudication proceedings

    • Enquiries or investigations initiated

    • Show-cause notices issued

  • All such actions are deemed to have been taken under the corresponding provisions of the new regulations.

  • This creates a legal continuity between old and new regulations.

  • It prevents any disruption or challenge to actions taken under the old framework.

• (b) Continuation of Rights, Liabilities and Proceedings Despite Repeal

  • This provision applies notwithstanding the repeal of the earlier takeover regulations.

  • It ensures that the past operation of the repealed regulations remains valid.

  • Anything duly done or suffered under the old regulations continues to have effect.

  • Any rights, privileges, obligations, or liabilities that were acquired or incurred under the old regulations remain intact.

  • Any penalty, forfeiture, or punishment arising from offences under the old regulations continues to be enforceable.

  • Any investigation, legal proceeding, or remedy relating to such matters can continue without interruption.

  • These matters are treated as if the repealed regulations had never been repealed for such purposes.

• (c) Continuation of Ongoing Open Offers Under Old Regulations

  • This provision applies to open offers that had already been announced under the old regulations.

  • If a public announcement was made under the repealed regulations, the process does not shift to the new regulations.

  • Such open offers must be continued under the old (repealed) regulations.

  • They must also be completed in accordance with those same regulations.

  • The new regulations do not apply retrospectively to such ongoing offers.

35(3).

• (3) Reference to Old Regulations Deemed as Reference to New Regulations

  • This provision applies after the repeal of the 1997 takeover regulations.

  • It deals with situations where other regulations, guidelines, or circulars still refer to the old regulations.

  • Such references are not treated as invalid or obsolete.

  • Instead, any reference to the old regulations is deemed to be a reference to the corresponding provisions of the new regulations.

  • This applies to all regulations, guidelines, and circulars issued by Securities and Exchange Board of India.

  • The correspondence is based on equivalent provisions in the new framework.