Date: 2021-03-25Category: Not ApplicableState: Union GovernmentCountry: India
Prior Approval for Change in control: Transfer of shareholdings among immediate relatives and transmission of shareholdings and their effect on change in control
Executive Summary:
This SEBI circular clarifies the procedure for seeking prior approval for change in control, specifically concerning the transfer/transmission of shareholding among immediate relatives. It outlines the conditions under which such transfers will or will not be construed as a change in control for various intermediary types. It refers to circular No: CIRMIRSD142011 dated August 02, 2011.
Key Points / Main Content:
* **Unlisted Body Corporate Intermediary:**
* Transfer of shareholding among immediate relatives (as defined in Regulation 2l of SEBI SAST Regulations) does not constitute a change in control.
* Transfer of shareholding by way of transmission, whether to immediate relatives or not, does not constitute a change in control.
* **Proprietary Firm Intermediary:**
* Transfer or bequeathing of business capital by transmission is considered a change in control.
* The legal heir/transferee must obtain prior approval and fresh registration.
* **Partnership Firm Intermediary:**
* Inter-se transfer of ownership interest among partners in firms with more than two partners does not constitute a change in control.
* If a partnership firm consists of two partners only, and a new partner is inducted in the firm, then the same would be considered as a change in control, requiring fresh registration and prior approval of SEBI.
* Bequeathing of partnership rights to legal heirs via transmission, where the partnership deed allows, does not constitute a change in control, and the firm is reconstituted.
* **Fit and Proper Person Criteria:**
* Incoming entities/shareholders becoming part of controlling interest through transfer/transmission must meet the "fit and proper person" criteria as per Schedule II of SEBI Intermediaries Regulations, 2008.
Impact Analysis:
* **Stock Brokers through exchanges, Depository Participants through Depositories, Merchant Bankers, Registrar to an Issue and Share Transfer Agent, Debenture Trustee, Credit Rating Agencies, Bankers to an issue:**
* Impact: Must comply with the clarified guidelines regarding change in control assessments for shareholding transfers/transmissions.
* Action Required: Ensure internal procedures align with the circular's provisions when processing or assessing change in control requests.
* **Incoming entities/shareholders:**
* Impact: Those becoming part of controlling interest in the intermediary pursuant to transfer of shares from immediate relative transmission of shares immediate relative or not, need to satisfy the fit and proper person criteria stipulated in Schedule II of SEBI Intermediaries Regulations, 2008.
* Action Required: Ensure compliance with "fit and proper person" criteria.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): The regulatory body in India that oversees the securities market.
SEBI SAST Regulations: Regulations pertaining to substantial acquisition of shares and takeovers as defined by SEBI.
SEBI Intermediaries Regulations, 2008: Regulations governing intermediaries in the securities market as defined by SEBI.
Stock Brokers: Entities that execute trades on behalf of investors.
Debenture Trustee: A trustee representing the interests of debenture holders.
Credit Rating Agencies: Agencies that assess the creditworthiness of companies and debt instruments.
Section 11(1) of the Securities and Exchange Board of India Act, 1992: The section of the SEBI Act that grants powers to SEBI to protect investors and regulate the securities market.
Anupma Chadha: Deputy General Manager at SEBI, who signed the circular.
CIRCULAR
SEBI/HO/MIRSD/DOR/CIR/P/2021/42 March 25, 2021
All Stock Brokers through exchanges
All Depository Participants through Depositories
All Merchant Bankers
All Registrar to an Issue and Share Transfer Agent
All Debenture Trustee
All Credit Rating Agencies
All Bankers to an issue
Dear Sir / Madam,
Sub: Prior Approval for Change in control: Transfer of shareholdings among
immediate relatives and transmission of shareholdings and their effect on
change in control
SEBI vide circular No: CIR/MIRSD/14/2011 dated August 02, 2011 addressed to stock
exchanges/ depositories and intermediaries specified the procedure for seeking prior
approval for change in control from SEBI. In this regard, following is clarified with
respect to transfer of shareholding among immediate relatives and transmission of
shareholding:
1. Transfer /transmission of shareholding in case of unlisted body corporate
intermediary: In following scenarios, change in shareholding of the intermediary
will not be construed as change in control:
a) Transfer of shareholding among immediate relatives shall not result into
change in control. Immediate relative shall be construed as defined under
Regulation 2(l) of SEBI SAST Regulations which inter-alia includes any
Page 1 of 3spouse of that person, or any parent, brother, sister or child of the person or
of the spouse;
b) Transfer of shareholding by way of transmission to immediate relative or not,
shall not result into change in control.
2. Transfer /transmission of shareholding in case of a proprietary firm type
intermediary: In case of an intermediary being a proprietary concern, the
transfer or bequeathing of the business/capital by way of transmission to another
person is a change in the legal formation or ownership and hence by the
definition of change in control, such transmission or transfer shall be considered
as change in control. The legal heir / transferee in such cases is required to
obtain prior approval and thereafter fresh registration shall be obtained in the
name legal heir/transferee.
3. Transfer /transmission of ownersh ip interest in case of partnership firm
type intermediary: Change in partners and their ownership interest of the
partnership firm type intermediary shall be dealt in following manner:
a) Transfer of ownership interest in case of partnership firm: In case a
SEBI registered entity is registered as a partnership firm with more than two
partners, then inter-se transfer amongst the partners shall not be construed to
be change in control. Where the partnership firm consists of two partners
only, the same would stand as dissolved upon the death of one of the
partners. However, if a new partner is inducted in the firm, then the same
would be considered as a change in control, requiring fresh registration and
prior approval of SEBI.
b) Transmission of ownership interest in case of partnership firm: Where
the partnership deed contains a clause that in case of death of a partner, the
Page 2 of 3legal heir(s) of deceased partner be admitted, then the legal heir(s) may
become the partner (s) of the partnership firm. In such scenario the
partnership firm is reconstituted. Bequeathing of partnership right to legal
heir(s) by way of transmission shall not be considered as change in control.
4. Incoming entities/ shareholders becoming part of controlling interest in the
intermediary pursuant to transfer of shares from immediate relative / transmission
of shares (immediate relative or not), need to satisfy the fit and proper person
criteria stipulated in Schedule II of SEBI (Intermediaries) Regulations, 2008
This circular is issued in exercise of powers conferred under Section 11 (1) of the
Securities and Exchange Board of India Act, 1992, to protect the interests of investors in
securities and to promote the development of, and to regulate the securities market.
Yours faithfully
Anupma Chadha
Dy. General Manager
Phone:022-26449319
Email: anupmac@sebi.gov.in
Page 3 of 3