SEBI postponed freezing MF Folios without Nomination to Sept 30, 2023; Introduces Framework for Scheme of Arrangement by Unlisted MIIs

On March 28, 2023, the Securities and Exchange Board of India (SEBI) postponed the decision to freeze Mutual Fund (MF) folios without nomination to September 30, 2023 instead of March 31, 2023.

• This circular by SEBI is  issued  in  exercise  of  powers  conferred  under  Section  11  (1)  of  SEBI Act, 1992, read with the provisions of Regulation 77  of SEBI  (Mutual  Funds)  Regulations,  1996,  to  protect  the  interest  of  investors  in securities and to promote the development of the securities market.

Background:

In July 2022, SEBI had prescribed the requirement for nomination and opting out of nomination for all the existing individual unit holders holding mutual fund units either solely or jointly by March 31, 2023 failing which the folios will be frozen for debits.

Key Points:

i.In lieu with the current decision, Asset management company (AMCs) and  Registrar & Transfer agents (RTAs) will encourage their customers/unit holders via Emails (Electronic Mail) and SMS (Short Message Service) to complete the nomination process to avoid getting their accounts frozen by next deadline i.e. September 30, 2023.

ii.SEBI has specified the format for nomination/opting out under which MF entities are directed to offer online as well as offline facilities to the MF investors to either submit their nomination requests or to declare their intention to opt out of the nomination.

Nomination: Nomination is a process of appointing a person to take care of your assets in the event of death. It is mandatory for new folios/accounts opened by investors to make a nomination. In case an investor does not wish to nominate, they can opt out of the process while filling up the form.

Folio: A folio is a unique number allotted to each mutual fund investor. It can be considered similar to a bank account number.

SEBI introduces Framework for Scheme of Arrangement by Unlisted MIIs w.e.f. April 27, 2023

On the recommendations of Secondary Market Advisory Committee (SMAC) chaired by Gurumoorthy Mahalingam, SEBI introduced a framework for ‘Scheme of Arrangement by unlisted Market Infrastructure Institutions (MIIs)‘ to bring uniformity in the norms in line with provisions currently applicable to listed MIIs.

• MII include Stock Exchanges, Clearing Corporations and Depositories.
• The framework will be applicable from April 27, 2023.

This  circular  is  issued  in  exercise  of  powers  conferred  under  Section  11(1)  of  the SEBI, 1992.

Highlights:

i.The new framework requires unlisted MIIs that plan to or are already undertaking a scheme of arrangement under the Companies Act 2013, to submit the draft scheme of arrangement along with a non-refundable fee, and relevant  information  to SEBI.

• This is mandatory to obtain an observation or no-objection letter from SEBI, based on its specific requirements, before filing the scheme with any court or tribunal.
• Click Here for relevant details to be submitted with SEBI

ii.SEBI will charge a fee to the unlisted MII at the rate of 0.1% of the paid-up share capital of the unlisted company, Transferee Company, or resulting company, whichever is higher, after the proposed scheme has been sanctioned.

• However, the fee will not exceed Rs 5,00,000.

iii. During the draft scheme processing, SEBI may request clarifications from any relevant person, including the unlisted MII. If required, it also seeks the opinion of an Independent Chartered Accountant (CA).

iv.SEBI will issue its observation or no-objection letter on the draft scheme within 30 days after receiving a satisfactory response regarding the requested clarifications.

v.The SEBI observation or no-objection letter will be valid for 6 months from the date of issuance, during which the scheme must be filed with any necessary court or tribunal for approval.

Note: In the case of a merger involving only a wholly-owned subsidiary or division with its parent company, the requirement to submit draft schemes to SEBI may not apply. However, the unlisted MIIs involved must still file the draft schemes with SEBI for disclosure purposes, and the relevant information will be published on their websites.

Recent Related News:

i.SEBI introduced the Issue Summary Document (ISD) for filing papers pertaining to IPO (Initial Public Offer) and for further issue of securities in XBRL (eXtensible Business Reporting Language) format to make available relevant information at the stock exchanges and depositories in a structured manner.

ii.SEBI has strengthened the green bond framework by introducing “Blue” and “Yellow” bonds as new modes of sustainable finance. These bonds are subcategories of Green Debt Securities (GDS), with ‘Blue Bonds’ pertaining to water management and the marine sector and ‘Yellow Bonds’ pertaining to solar energy.

About Securities Exchange Board of India (SEBI):

Chairperson– Madhabi Puri Buch
Headquarters– Mumbai, Maharashtra
Establishment– 12 April 1992