The Securities Exchange Board of India (“SEBI”), in exercise of powers conferred under Section 11(1) of the SEBI Act, 1992 read with Regulation 15(11) and Regulation 29 of SEBI (Investment Advisers) Regulations, 2013, Regulation 24(3) and Regulation 33 of SEBI (Research Analysts) Regulations, 2014 and Regulation 7(5) and Regulation 17 of SEBI (KYC Registration Agency) Regulations, 2011, issued a circular, vide Circular No. SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2024/164[1], dated December 27, 2024, deals with the transfer of shareholdings among immediate relatives and transmission of shareholdings along with its effect on change in control (“Circular”).
The Circular aims to provide clarification for the changes in control resulting from the transfer of shareholding among immediate relatives and transmission of shareholding in respect of Investment Advisers (IAs), Research Analysts (RAs) and KYC (Know Your Client) Registration Agencies (KRAs). The key provisions of the Circular are as outlined below:
- Transfer/ Transmission of Shareholding in Unlisted Body Corporate Intermediaries:
Changes in shareholding in the case of unlisted body corporate intermediaries, shall not be considered as a change in control under the following circumstances:
- Transfer Among Immediate Relatives: A transfer of shareholding among immediate relatives shall not be construed as a change in control. For clarity, “immediate relative” includes a spouse, parent, brother, sister, or child of the person or child of the spouse, as defined under Regulation 2(1)(I) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
- Transmission of Shareholding: The transmission of shareholding, whether to an immediate relative or not, shall not result in a change in control.
- Transfer/ Transmission of Shareholding in Proprietary Firm Type Intermediaries:
For proprietary firm type intermediaries, the transfer or bequeathing of ownership of the business/ capital by way of transmission to another person is an alteration of the legal formation or ownership of the intermediary and shall be considered as a change in control. In such cases, the legal heir or the transferee shall be required to obtain prior approval from SEBI and thereafter apply for fresh registration in the name of the legal heir or transferee, whichever applicable.
- Transfer/ Transmission of Ownership Interest in Partnership Firm Type Intermediary:
Changes in partners and their ownership interest in a partnership firm type intermediary shall be dealt with as follows:
- Transfer of Ownership Interest: In a partnership firm with more than two partners, an inter-se transfer amongst the partners shall not be considered as a change in control. However, if a partnership firm consists of only two partners, the death of one partner shall result in the dissolution of the partnership. In the event that a new partner is inducted, the same shall be considered as a change in control. This shall require a fresh registration along with prior approval from SEBI.
- Transmission of Ownership Interest: If the partnership deed stipulates that, in the event of the death of a partner, the legal heir(s) may be admitted as a partner(s), the partnership firm shall be reconstituted. In such cases, bequeathing partnership rights to legal heir(s) shall not be deemed a change in control.
- Other Provisions:
Incoming entities or shareholders becoming part of the controlling interest of an intermediary, by way of a transfer of shares from immediate relatives or transmission of shares (whether to an immediate relative or not), shall be liable to satisfy the fit and proper person criteria as outlined in Schedule II of the SEBI (Intermediaries) Regulations, 2008. Further, through this Circular, SEBI directs the Investment Adviser Administration and Supervisory Body (IAASB) and the Research Analyst Administration and Supervisory Body (RAASB) to:
- Bring the provisions of this Circular to notice to the Investment Advisers (IAs) and Research Analysts (RAs) and ensure the same is available on their respective websites.
- Make the necessary amendments to the relevant bye-laws, guidelines, Standard Operating Procedures (SOPs), rules, and regulations for the effective implementation of this Circular.
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