Executive Summary:
This circular, issued by SEBI on December 28, 2023, modifies the framework for Social Stock Exchanges (SSEs) following public feedback and amendments to ICDR and LODR Regulations. It details new requirements for Not for Profit Organizations (NPOs) seeking registration, clarifies social impact assessment details, and introduces procedures for public issuance of Zero Coupon Zero Principal Instruments by NPOs. The circular takes effect immediately.
Key Points / Main Content:
NPO Registration Requirements:
* Amends requirements for NPO registration with SSEs.
* Specifies acceptable registration certificates under the Income-tax Act, 1961 (Sections 12A, 12AA, 12AB, 10(23C), 10(46)).
* Mandates disclosure of pending regulatory notices/scrutiny and fines/penalties.
* Stock Exchanges can refuse registration if notices/scrutiny cases endanger NPO registration.
* Requires entities to disclose the availability of tax deductions for investors under the Income-tax Act, 1961.
Social Impact Assessment Details:
* Replaces the reference to Regulation 292K(1) with Regulation 292K.
* Requires NPOs to provide details of past social impact, including trends in key metrics, number of beneficiaries, cost per beneficiary, and administrative overheads.
Zero Coupon Zero Principal Instruments Issuance:
* NPOs must file a draft fundraising document with the SSE and seek in-principle approval for listing Zero Coupon Zero Principal Instruments.
* The draft document must be available on the SSE and NPO websites for public comment for at least 21 days.
* SSEs must provide observations on the draft document within 30 days of filing or clarification receipt.
* NPOs must incorporate SSE observations into the final fundraising document.
Zero Coupon Zero Principal Instruments Conditions:
* Instruments must be issued in dematerialized form.
* Instruments are non-transferable until expiry.
* Minimum issue size: Rupees fifty lakhs.
* Minimum application size: Rupees ten thousand.
* Minimum subscription required: 75% of the funds proposed.
* Details of raising balance capital, or possible impact on social objectives must be disclosed in case of undersubscription
* Funds to be refunded if subscription is less than 75% of issue size.
* SSEs to maintain allotment details and specify additional issue procedure norms.
Impact Analysis:
Recognized Stock Exchanges:
* Impact: Responsible for implementing the revised framework, assessing NPO registrations, providing observations on fundraising documents, and maintaining allotment details.
* Action Required: Update registration processes, specify fundraising document details, and establish norms for issuing Zero Coupon Zero Principal Instruments.
Recognized Depositories:
* Impact: Involved in the issuance of Zero Coupon Zero Principal Instruments in dematerialized form.
* Action Required: Ensure systems support the issuance and holding of these instruments.
Merchant Bankers and Brokers Registered with SEBI:
* Impact: Need to be aware of the updated framework and advise NPOs accordingly.
* Action Required: Update advisory practices to reflect the new requirements for NPO registration and fundraising.
Social Enterprises and Social Impact Funds Registered with SEBI:
* Impact: Need to be aware of the new guidelines to support NPOs.
* Action Required: Understand new guidelines and integrate in to strategy.
Social Impact Assessment Firms:
* Impact: Assessment of social impact needs to be in accordance with the updated requirements.
* Action Required: Align assessment methodologies with the specified disclosure requirements for NPOs.
Institute of Chartered Accountants of India:
* Impact: Members may be involved in advising NPOs on compliance with the updated framework.
* Action Required: Ensure members are informed about the changes in registration and disclosure requirements.
Not for Profit Organizations (NPOs):
* Impact: Subject to revised registration requirements, new fundraising procedures, and specific conditions for issuing Zero Coupon Zero Principal Instruments.
* Action Required: Review and update registration applications, prepare fundraising documents according to SSE guidelines, and comply with the conditions for issuing Zero Coupon Zero Principal Instruments.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): The regulatory body for securities markets in India, responsible for investor protection and market regulation.
Social Stock Exchange (SSE): A platform for listing and trading securities of social enterprises and not-for-profit organizations.
Securities and Exchange Board of India Issue of Capital and Disclosure Requirements Regulations, 2018 (ICDR Regulations): Regulations governing the issuance of capital and disclosure requirements for companies in India.
Securities and Exchange Board of India Listing Obligations and Disclosure Requirements Regulations, 2015 (LODR Regulations): Regulations governing the listing obligations and disclosure requirements for companies listed on stock exchanges in India.
Incometax Act, 1961: The primary law governing income tax in India.
Zero Coupon Zero Principal Instruments: A type of financial instrument issued by not-for-profit organizations on the Social Stock Exchange.
Not for Profit Organization (NPO): An organization that does not operate for the purpose of making a profit.
Institute of Chartered Accounts of India: Professional accounting body in India.
CIRCULAR
SEBI/HO/CFD/PoD-1/P/CIR/2023/196
December 28, 2023
To,
All Recognized Stock Exchanges
All Recognized Depositories
All Merchant Bankers and Brokers registered with SEBI
All Social Enterprises
All Social Impact Fund registered with SEBI
All Social Impact Assessment Firms/ Institute of Chartered Accounts of India
Sir / Madam,
Sub: Framework on Social Stock Exchange (“SSE”)
1. SEBI vide its circular SEBI/HO/CFD/PoD-1/P/CIR/2022/120 dated September 19,
2022 notified the detailed framework on Social Stock Exchange.
2. Pursuant to the feedback received through public consultation the Board approved
amendments to the Securities and Exchange Board of India (Issue of Capital
and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”) and the
Securities and Exchange Board of India (Listing Obligations and Disclosure
Requirements) Regulations, 2015 (“LODR Regulations”). SEBI vide Notification
dated December 21, 2023 has notified amendments to ICDR Regulations and
LODR Regulations. The Board also approved the following modifications/ additions
to the aforesaid Circular : -
a. In Paragraph 1, sub-paragraph A, titled “Minimum requirement to be met by a Not
for Profit Organization (NPO) for registration with SSE in terms of Regulation 292F
of the ICDR Regulations”, the following requirement under the Board Parameter
in the table given below shall read as under:
Broad Parameter Indicator Details
Exemption under Registration Certificate a. Registration Certificate
Income-tax Act, 1961: under section 12A/ under section 12A/
12AA/ 12AB/ 10(23C)/ 12AA/ 12AB/ 10(23C)/
10(46) under Income- 10(46) to be valid for at
tax Act, 1961 least the next 12
months.
b. Details regarding
pending notices or
scrutiny cases from all
regulatory and
statutory authority shall
be disclosed at the time
of making the
application for the
registrationc. Fines or penalties if
imposed shall be
disclosed as paid or
appealed within 7 days.
The Stock Exchanges
shall have the right to
refuse registration of
those applicants, if the
notices/ scrutiny cases
are grave and debilitating
enough to endanger the
registration of the NPO
under the Income-tax Act,
1961 or other relevant
laws.
Deduction under Valid 80G registration Entity to ensure disclosure
Income-tax Act, 1961 under Income Tax Act, whether tax deduction is
1961 for entities available or not to
registered under investors.
section 12A/ 12AA/
12AB of the Income-tax
Act, 1961
b. In Paragraph 1, in sub-paragraph B, -
i. The reference of “Regulation 292K(1)” in the title of sub-paragraph B is
substituted by “Regulation 292K”.
ii. Sub-paragraph B(2)(j) shall be substituted with the following :
“j. Social Impact
Details of past social impact as per the existing practice of NPOs. The
past social impact should highlight trends in key metrics/ parameters
relevant to the NPO (as may be determined by the Exchanges) for which
it seeks to raise funds on SSE, number of beneficiary, cost per
beneficiary and administrative overheads.”
c. In Paragraph 1, after sub-paragraph A and before sub-paragraph B, the following
new sub-paragraphs AA, AB and AC shall be inserted -
“AA. Procedure for public issuance of Zero Coupon Zero Principal
Instruments by a not for profit organization
(1) The not for profit organization shall file the draft fund raising document with
the Social Stock Exchange where it is registered along with the fees as specified
by the Social Stock Exchange and an application seeking in-principle approval
for listing of its Zero Coupon Zero Principal Instruments on the Social Stock
Exchange:
Provided that Social Stock Exchange shall specify the details to be incorporated
in the fund raising document:(2) The draft fund raising document shall be made available on the website of
Social Stock Exchange and the Not for Profit Organization for a period of at least
21 days for public comments.
(3) The Social Stock Exchange shall provide its observation on the draft fund
raising document to the not for profit organization within a time period of 30 days
from the filing of the draft fund raising document or receipt of clarification, if any,
sought by the Social Stock Exchange from not for profit organization whichever
is later.
(4) The not for profit organization shall incorporate the observations of the Social
Stock Exchange in draft fund raising document and file the final fund raising
document to Social Stock Exchange prior to opening the issue.
AB. Contents of the fund raising document.
(1) The draft fund raising document and the final fund raising document shall
contain all material disclosures which are true and adequate to enable the
applicants to take an informed decision.
(2) Without prejudice to the generality of clause (1) above, the draft fund raising
document and the final fund raising document shall contain disclosures as may
be specified by the Board from time to time:
Provided that the Social Stock Exchange may mandate additional disclosures
in respect of the draft fund raising document and the final fund raising
documents.
AC. Other conditions relating to issuance of Zero Coupon Zero Principal
Instruments
(1) Zero Coupon Zero Principal Instruments shall be issued in dematerialized
form only.
(2) The Zero Coupon Zero Principal Instruments shall not be transferable from
the original subscriber/ holder till the expiry of the tenure of the said
instrument.
(3) The minimum issue size shall be rupees fifty lakhs.
(4) The minimum application size shall be rupees ten thousand.
(5) The minimum subscription required to be achieved shall be 75% of the funds
proposed to be raised through issuance of Zero Coupon Zero Principal
Instruments.
(6) In case of any under subscription, the not for profit organization shall, in the
fund raising document, provide details on the following:
a) manner of raising balance capital in case of such under subscription
between 75% and 100%;
b) possible impact on achieving the social objective(s) in case such under
subscription is not arrangedProvided that the funds shall be refunded in case the subscription is less than
75% of the issue size
(7) The Social Stock Exchange shall maintain the details of the allotment
pursuant to issuance of Zero Coupon Zero Principal Instruments by a not for
profit organization.
(8) The Social Stock Exchange shall specify the additional norms in respect of
issue procedure including on agreements with depositories, banks, etc.,
ASBA related matters, duration for public issuance, allocation methodology
and any other ancillary matter related to issue procedure.”
3. This Circular is issued in exercise of the powers conferred under Section 11(1) of
the Securities and Exchange Board of India Act, 1992 to protect the interests of
investors and to promote the development of, and to regulate the securities market
and shall come into effect immediately.
4. A copy of this circular is available on SEBI website at www.sebi.gov.in under the
categories “Legal Framework → Circulars”.
Yours faithfully,
Yogita Jadhav
General Manager
Corporation Finance Department
Division of Policy and Development
+91 22 2644 9583
Email – yogitag@sebi.gov.in