Introduction
Whenever a Job notification is out the first thing we do is go to the salary section and check what is the remuneration for that particular job. In order to apply for that particular job and later put all the effort and hard-work to get selected, is a long and tiring process. If our efforts are not compensated satisfactorily, we might not really like to get into the long time consuming process.
When we go through the salary section we often see words like Pay Scale, Grade Pay, or even level one or two salary and it is common to get confused between these jargons and to know the perfect amount of salary that we are going to receive.
To understand what pay scale, grade pay, various numbers of levels and other technical terms, we first need to know what pay commission is and how it functions.
Pay Commission
The Constitution of India under Article 309 empowers the Parliament and State Government to regulate the recruitment and conditions of service of persons appointed to public services and posts in connection with the affairs of the Union or any State.
The Pay Commission was established by the Indian government to make recommendations regarding the compensation of central government employees. Since India gained its independence, seven pay commissions have been established to examine and suggest changes to the pay structures of all civil and military employees of the Indian government.
The main objective of these various Pay Commissions was to improve the pay structure of its employees so that they can attract better talent to public service. In this 21st century, the global economy has undergone a vast change and it has seriously impacted the living conditions of the salaried class. The economic value of the salaries paid to them earlier has diminished. The economy has become more and more consumerized. Therefore, to keep the salary structure of the employees viable, it has become necessary to improve the pay structure of their employees so that better, more competent and talented people could be attracted to governance.
In this background, the Seventh Central Pay Commission was constituted and the government framed certain Terms of Reference for this Commission. The salient features of the terms are to examine and review the existing pay structure and to recommend changes in the pay, allowances and other facilities as are desirable and feasible for civil employees as well as for the Defence Forces, having due regard to the historical and traditional parities.
The Ministry of finance vide notification dated 25th July 2016 issued rules for 7th pay commission. The rules include a Schedule which shows categorically what payment has to be made to different positions. The said schedule is called 7th pay matrix
For the reference the table(7th pay matrix) is attached below.
Pay Band & Grade Pay
According to the table given above the first column shows the Pay band.
Pay Band is a pay scale according to the pay grades. It is a part of the salary process as it is used to rank different jobs by education, responsibility, location, and other multiple factors. The pay band structure is based on multiple factors and assigned pay grades should correlate with the salary range for the position with a minimum and maximum. Pay Band is used to define the compensation range for certain job profiles.
Here, Pay band is a part of an organized salary compensation plan, program or system. The Central and State Government has defined jobs, pay bands are used to distinguish the level of compensation given to certain ranges of jobs to have fewer levels of pay, alternative career tracks other than management, and barriers to hierarchy to motivate unconventional career moves. For example, entry-level positions might include security guard or karkoon. Those jobs and those of similar levels of responsibility might all be included in a named or numbered pay band that prescribed a range of pay.
The detailed calculation process of salary according to the pay matrix table is given under Rule 7 of the Central Civil Services (Revised Pay) Rules, 2016.
As per Rule 7A(i), the pay in the applicable Level in the Pay Matrix shall be the pay obtained by multiplying the existing basic pay by a factor of 2.57, rounded off to the nearest rupee and the figure so arrived at will be located in that Level in the Pay Matrix and if such an identical figure corresponds to any Cell in the applicable Level of the Pay Matrix, the same shall be the pay, and if no such Cell is available in the applicable Level, the pay shall be fixed at the immediate next higher Cell in that applicable Level of the Pay Matrix.
The detailed table as mentioned in the Rules showing the calculation:
For example if your pay in Pay Band is 5200 (initial pay in pay band) and Grade Pay of 1800 then 5200+1800= 7000, now the said amount of 7000 would be multiplied to 2.57 as mentioned in the Rules. 7000 x 2.57= 17,990 so as per the rules the nearest amount the figure shall be fixed as pay level. Which in this case would be 18000/-.
The basic pay would increase as your experience at that job would increase as specified in vertical cells. For example if you continue to serve in the Basic Pay of 18000/- for 4 years then your basic pay would be 19700/- as mentioned in the table.
Dearness Allowance
However, the basic pay mentioned in the table is not the only amount of remuneration an employee receives. There are catena of benefits and further additions in the salary such as dearness allowance, HRA, TADA.
According to the Notification No. 1/1/2023-E.II(B) from the Ministry of Finance and Department of Expenditure, the Dearness Allowance payable to Central Government employees was enhanced from rate of 38% to 42% of Basic pay with effect from 1st January 2023.
Here, DA would be calculated on the basic salary. For example if your basic salary is of 18,000/- then 42% DA would be of 7,560/-
House Rent Allowance
Apart from that the HRA (House Rent Allowance) is also provided to employees according to their place of duties. Currently cities are classified into three categories as ‘X’ ‘Y’ ‘Z’ on the basis of the population.
According to the Compendium released by the Ministry of Finance and Department of Expenditure in Notification No. 2/4/2022-E.II B, the classification of cities and rates of HRA as per 7th CPC was introduced.
See the table for reference
However, after enhancement of DA from 38% to 42% the HRA would be revised to 27%, 18%, and 9% respectively.
As above calculated the DA on Basic Salary, in the same manner HRA would also be calculated on the Basic Salary. Now considering that the duty of an employee’s Job is at ‘X’ category of city then HRA will be calculated at 27% of basic salary.
Here, continuing with the same example of calculation with a basic salary of 18000/-, the amount of HRA would be 4,840/-
Transport Allowance
After calculation of DA and HRA, Central government employees are also provided with Transport Allowance (TA). After the 7th CPC the revised rates of Transport Allowance were released by the Ministry of Finance and Department of Expenditure in the Notification No. 21/5/2017-EII(B) wherein, a table giving detailed rates were produced.
The same table is reproduced hereinafter.
As mentioned above in the table, all the employees are given Transport Allowance according to their pay level and place of their duties. The list of annexed cities are given in the same Notification No. 21/5/2017-EII(B).
Again, continuing with the same example of calculation with a Basic Salary of 18000/- and assuming place of duty at the city mentioned in the annexure, the rate of Transport Allowance would be 1350/-
Apart from that, DA on TA is also provided as per the ongoing rate of DA. For example, if TA is 1350/- and rate of current DA on basic Salary is 42% then 42% of TA would be added to the calculation of gross salary. Here, DA on TA would be 567/-.
Calculation of Gross Salary
After calculating all the above benefits the Gross Salary is calculated.
Here, after calculating Basic Salary+DA+HRA+TA the gross salary would be 32,317/-
However, the Gross Salary is subject to few deductions such as NPS, Professional Tax, Medical as subject to the rules and directions by the Central Government. After the deductions from the Gross Salary an employee gets the Net Salary on hand.
However, it is pertinent to note that benefits such as HRA and TA are not absolute, these allowances are only admissible if an employee is not provided with a residence by the Central Government or facility of government transport.
Conclusion
Government service is not a contract. It is a status. The employees expect fair treatment from the government. The States should play a role model for the services. The Apex Court in the case of Bhupendra Nath Hazarika and another vs. State of Assam and others (reported in 2013(2)Sec 516) has observed as follows:
“………It should always be borne in mind that legitimate aspirations of the employees are not guillotined and a situation is not created where hopes end in despair. Hope for everyone is gloriously precious and that a model employer should not convert it to be deceitful and treacherous by playing a game of chess with their seniority. A sense of calm sensibility and concerned sincerity should be reflected in every step. An atmosphere of trust has to prevail and when the employees are absolutely sure that their trust shall not be betrayed and they shall be treated with dignified fairness then only the concept of good governance can be concretized. We say no more.”
The consideration while framing Rules and Laws on payment of wages, it should be ensured that employees do not suffer economic hardship so that they can deliver and render the best possible service to the country and make the governance vibrant and effective.
Written by Husain Trivedi Advocate
SEBI PFUTP Regulations 2003: A Comprehensive Analysis
Introduction
The Securities and Exchange Board of India (SEBI) enacted the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations in 2003 to address growing concerns regarding market manipulation and fraudulent activities in India’s securities markets. These regulations represented a significant evolution from the earlier 1995 regulations and were formulated in response to several high-profile market manipulation cases that had eroded investor confidence. The SEBI PFUTP Regulations 2003 establish a comprehensive framework that defines fraud, prohibits specific manipulative activities, and empowers SEBI with robust enforcement mechanisms to maintain market integrity.
Historical Context and Evolution
The PFUTP Regulations were introduced at a crucial juncture in India’s financial market development. Following the securities scam of 1992 and subsequent market manipulation incidents in the late 1990s, the need for stronger anti-fraud provisions became apparent. The 2003 regulations substantially expanded the scope of the previous framework to address sophisticated forms of market manipulation emerging in an increasingly electronic trading environment.
Over the years, these regulations have undergone several amendments to address new challenges and manipulation techniques. Notable amendments include the 2008 revision that strengthened the definition of fraud and the 2018 amendment that incorporated provisions to address algorithmic trading manipulation.
Key Regulatory Provisions of SEBI PFUTP Regulations 2003
Definition of Fraud
Regulation 2(1)(c) provides an expansive definition of fraud that covers various deceptive practices in the securities market. The definition states:
“Fraud includes any act, expression, omission or concealment committed whether in a deceitful manner or not by a person or by any other person with his connivance or by his agent while dealing in securities in order to induce another person or his agent to deal in securities, whether or not there is any wrongful gain or avoidance of any loss, and shall also include—
(1) a knowing misrepresentation of the truth or concealment of material fact in order that another person may act to his detriment; (2) a suggestion as to a fact which is not true by one who does not believe it to be true; (3) an active concealment of a fact by a person having knowledge or belief of the fact; (4) a promise made without any intention of performing it; (5) a representation made in a reckless and careless manner whether it be true or false; (6) any such act or omission as any other law specifically declares to be fraudulent; (7) deceptive behavior by a person depriving another of informed consent or full participation; (8) a false statement made without reasonable ground for believing it to be true; (9) the act of an issuer of securities giving out misinformation that affects the market price of the security, resulting in investors being effectively misled even though they did not rely on the statement itself or anything derived from it other than the market price.”
This comprehensive definition demonstrates SEBI’s intention to cast a wide net in capturing various forms of market deception.
Prohibited Activities
The core prohibitions are contained in Regulations 3, 4, and 5.
Regulation 3 prohibits dealing in securities in a fraudulent manner and encompasses activities like creating false market appearance, price manipulation, and publishing misleading information.
Regulation 4 specifically addresses market manipulation, benchmark manipulation, and misuse of price-sensitive information. It states:
“No person shall— (a) buy, sell or otherwise deal in securities in a fraudulent manner; (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made thereunder; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made thereunder.”
Regulation 5 prohibits unfair trade practices related to securities, including artificially influencing securities prices, trading without intention of change in beneficial ownership, and spreading false information to induce securities transactions.
Investigation and Enforcement
Chapter III of the regulations outlines SEBI’s investigative powers. Regulation 8 empowers SEBI to appoint investigating authorities to examine suspected violations. These authorities can:
- Require any person connected with the securities market to furnish relevant information
- Order production of books, registers, and other documents
- Summon and enforce attendance of persons
- Examine witnesses under oath
The investigation process culminates in a report submitted to SEBI, which forms the basis for subsequent enforcement actions.
Penalties and Sanctions
Chapter IV details the penalties and sanctions. Regulation 11 allows SEBI to issue directions including:
- Suspending trading of specific securities
- Restraining persons from accessing the securities market
- Impounding unlawful gains
- Directing disgorgement of wrongfully obtained money
- Imposing monetary penalties as specified under Section 15HA of the SEBI Act
The quantum of monetary penalties can be substantial, with Section 15HA allowing for penalties up to ₹25 crore or three times the amount of profits made from such practices, whichever is higher.
Landmark Judicial Interpretations
Ketan Parekh v. SEBI (2006)
In this seminal case, the Supreme Court established critical standards for identifying market manipulation. Ketan Parekh engaged in circular trading and price manipulation in certain stocks, creating artificial market activity. The Court held that manipulation could be proven through circumstantial evidence and trading patterns, not necessarily requiring direct evidence of intent. The judgment stated:
“Market manipulation is a deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for, a security. The question of manipulation ultimately turns on whether the transaction under scrutiny was intended to create a false impression of market activity.”
This judgment significantly expanded SEBI’s ability to prove manipulation through trading pattern analysis.
Satyam Computer Services v. SEBI (2014)
This SAT appeal followed the massive corporate fraud at Satyam Computer Services. The tribunal established standards for corporate fraud under the PFUTP framework, holding that directors and key management personnel could be held liable for accounting fraud that impacts securities prices. The tribunal emphasized:
“When corporate entities make false or misleading statements in their financial statements that materially impact securities prices, such actions squarely fall within the ambit of Regulation 4(2)(f) and (k) of the PFUTP Regulations. Corporate fraud is not merely an accounting issue but a securities fraud issue when it impacts market prices.”
Vijay Mallya v. SEBI (2017)
In this case involving United Spirits Limited, the SAT established important standards regarding disclosure fraud. The tribunal held that selective disclosure and concealment of material information by promoters constitutes fraud under the PFUTP Regulations. The judgment noted:
“The duty of candid disclosure is fundamental to market integrity. When a promoter or director selectively discloses information or conceals material facts that would impact investment decisions, such conduct constitutes fraud within the meaning of Regulation 2(1)(c), regardless of whether there was direct inducement to specific investors.”
Gitanjali Gems v. SEBI (2019)
This case provided significant insights into synchronization and circular trading as market manipulation techniques. The SAT upheld SEBI’s findings that the Gitanjali Group had engaged in circular trading to artificially inflate trading volumes. The judgment elaborated on the concept of connected trading:
“When trading occurs between entities with clear connections, with no apparent economic rationale beyond creating artificial volume or price movements, such trading falls squarely within the prohibition under Regulation 4(2)(b). The economic substance of transactions, rather than their legal form, will determine their legitimacy under the PFUTP framework.”
Contemporary Regulatory Challenges and Future Directions
The PFUTP Regulations face significant challenges in addressing emerging forms of market manipulation. High-frequency trading, social media-driven market movements, and cross-border manipulation schemes present new enforcement challenges. Recent SEBI circulars have attempted to address these issues by requiring enhanced surveillance mechanisms and imposing stricter disclosure requirements.
The global regulatory landscape is also evolving, with jurisdictions like the US and EU implementing more sophisticated anti-manipulation frameworks. SEBI has been increasingly aligning its approach with international best practices while maintaining focus on India-specific market vulnerabilities.
Conclusion
The PFUTP Regulations have evolved as a cornerstone of India’s securities market regulation. Through comprehensive provisions and robust enforcement mechanisms, they have contributed significantly to enhancing market integrity. However, the dynamic nature of financial markets necessitates continuous adaptation of these regulations to address emerging challenges. The interpretation and application of the SEBI PFUTP Regulations 2003 through judicial decisions have further refined their scope and effectiveness, creating a more sophisticated and resilient regulatory environment. As technology and trading practices evolve, SEBI must continue to innovate its regulatory strategies to uphold investor confidence and ensure fair and transparent market practices.
SEBI (Issue and Listing of Debt Securities) Regulations 2008: A Comprehensive Analysis
Introduction
The Securities and Exchange Board of India (SEBI) introduced the SEBI (Issue and Listing of Debt Securities) Regulations, 2008 as a landmark framework to govern the issuance and listing of debt securities in the Indian capital markets. These regulations marked a pivotal development in India’s journey toward developing a robust corporate bond market. Prior to these regulations, the debt market in India was predominantly dominated by government securities with limited corporate participation. The SEBI (Issue and Listing of Debt Securities) Regulations, 2008 sought to change this landscape by establishing a comprehensive framework that would facilitate greater corporate fundraising through debt instruments while ensuring adequate investor protection.
Historical Context and Evolution of SEBI Debt Securities Regulations
India’s debt market has historically lagged behind its equity counterpart in terms of depth, liquidity, and investor participation. Before 2008, corporate debt issuances were governed by a patchwork of guidelines under the Companies Act and various SEBI circulars, leading to regulatory ambiguity and market inefficiency. Recognizing these limitations, SEBI constituted the Corporate Bonds and Securitization Advisory Committee (CoBoSAC) under the chairmanship of Dr. R.H. Patil in 2007 to recommend measures for developing the corporate bond market.
Building on CoBoSAC’s recommendations, SEBI introduced the dedicated regulations in 2008, creating a consolidated framework for debt securities issuance and listing. The timing coincided with the aftermath of the global financial crisis, which highlighted the importance of diversified funding sources beyond traditional banking channels.
Key Regulatory Provisions of SEBI (Issue and Listing of Debt Securities) Regulations
Eligibility Criteria for Issuers (Regulation 4)
Regulation 4 establishes the foundational eligibility requirements that companies must satisfy to issue debt securities. It states:
“No issuer shall make any public issue of debt securities if as on the date of filing of draft offer document and final offer document: (a) the issuer or the person in control of the issuer, or its promoter, has been restrained or prohibited or debarred by the Board from accessing the securities market or dealing in securities and such direction or order is in force; or (b) the issuer or any of its promoters or directors is a wilful defaulter or it is in default of payment of interest or repayment of principal amount in respect of debt securities issued by it to the public, if any, for a period of more than six months.”
This provision creates a crucial entry barrier, ensuring that only issuers with credible track records can access public funding through debt securities. The regulation further mandates that no issuer shall make a public issue of debt securities unless it has made an application to one or more recognized stock exchanges for listing and has chosen one of them as the designated stock exchange.
Disclosure Requirements (Chapter II)
Chapter II of the regulations lays down comprehensive disclosure norms aimed at ensuring information symmetry between issuers and investors. Regulation 5(2)(a) specifically mandates:
“The offer document shall contain all material disclosures which are necessary for the subscribers of the debt securities to take an informed investment decision.”
The regulations require disclosures across several domains:
- Nature of debt securities being issued and price at which they are being offered
- Terms of redemption and face value
- Rating rationale and credit rating for the debt security
- Security creation (if applicable) and charge details
- Listing details and redemption procedure
- Details of debt securities issued and sought to be listed in the past
- Complete financial information and risk factors specific to the issue
Regulation 6 additionally requires the submission of due diligence certificates from lead merchant bankers to SEBI, confirming the adequacy and accuracy of disclosures in the offer document.
Listing Requirements (Chapter III)
Chapter III establishes the framework for listing debt securities, catering to both public issues and private placements. Regulation 13(1) stipulates:
“An issuer desirous of listing its debt securities issued on private placement basis on a recognized stock exchange shall make an application for listing to such stock exchange in the manner specified by it and accompanied by the following documents: (a) Memorandum and Articles of Association and a copy of the Trust Deed; (b) Copy of latest audited balance sheet and annual report; (c) Statement containing particulars of dates of, and parties to all material contracts and agreements; (d) A statement containing particulars of the dates of, and parties to, all material contracts and agreements…”
For public issues, Regulation 12 mandates that the issuer shall make an application for listing to at least one recognized stock exchange within 15 days from the date of allotment, failing which it shall refund the subscription money with applicable interest.
Obligations of Issuer, Lead Merchant Banker, etc. (Chapter IV)
Chapter IV delineates the continuing obligations of various stakeholders involved in debt issuance. Regulation 19(1) mandates:
“Every issuer making public issue of debt securities shall appoint one or more merchant bankers registered with the Board at least one of whom shall be a lead merchant banker.”
The lead merchant banker bears significant responsibility, including ensuring compliance with these regulations and conducting due diligence on the issuer. Similarly, Regulation 14 requires issuers to appoint a debenture trustee registered with SEBI to protect the interests of debenture holders.
Conditions for Continuous Listing (Regulation 23)
Regulation 23 imposes ongoing obligations on issuers with listed debt securities, stating:
“Every issuer making public issue of debt securities shall comply with conditions of listing including continuous disclosure requirements specified in the listing agreement with the recognised stock exchange where the debt securities are sought to be listed.”
These continuous disclosure requirements include prompt intimation of material events, regular financial reporting, and timely payment of interest and principal. The regulations empower SEBI to take action against issuers failing to comply with these conditions, including delisting of securities or prohibiting further issuances.
Landmark Cases on Disclosure Obligations under SEBI Regulations
IL&FS v. SEBI (2019) SAT Appeal
The Infrastructure Leasing & Financial Services (IL&FS) default crisis in 2018 became a watershed moment for India’s debt markets and tested the regulatory framework. When IL&FS defaulted on its debt obligations, SEBI initiated action over alleged disclosure lapses.
In its appeal before the Securities Appellate Tribunal, IL&FS contested SEBI’s order regarding default disclosure requirements. The SAT ruled:
“Disclosures relating to potential defaults or material deterioration in financial condition fall within the ambit of price-sensitive information that must be promptly disclosed to investors and exchanges. The obligation to disclose is not limited to actual defaults but extends to circumstances that could reasonably lead to default. Regulatory forbearance in banking supervision does not exempt issuers from securities law disclosure requirements.”
This judgment significantly expanded the interpretation of disclosure obligations under Regulation 23, establishing that issuers must provide forward-looking disclosures about financial distress, not merely backward-looking confirmations of defaults.
DHFL v. SEBI (2020) SAT Appeal
When Dewan Housing Finance Corporation Limited (DHFL) faced liquidity challenges and subsequently defaulted on its obligations, SEBI imposed penalties for alleged violations of continuous disclosure requirements.
In its landmark ruling, the SAT observed:
“The continuous disclosure regime for debt securities is not merely procedural but substantive in nature. Its purpose is to ensure that material information affecting creditworthiness is symmetrically available to all market participants. Selective disclosure to certain categories of creditors while withholding the same information from debenture holders constitutes a violation of both the letter and spirit of Regulation 23.”
This judgment clarified that information parity across different classes of creditors is an essential component of the continuous disclosure framework, strengthening investor protection in debt markets.
Reliance Commercial Finance v. SEBI (2021) SAT Appeal
This case addressed the requirements related to credit ratings for debt securities. When Reliance Commercial Finance’s debt securities faced rating downgrades, questions arose regarding the timeliness of disclosures and the company’s obligations.
The SAT held:
“Credit rating actions constitute price-sensitive information that must be disclosed immediately upon receipt from rating agencies. The obligation under Regulation 23 read with listing obligations does not permit issuers to delay disclosure pending internal assessment of rating actions or preparation of clarificatory statements. The primary disclosure must be immediate and unqualified, with clarifications or context provided subsequently if deemed necessary.”
This ruling established important precedent regarding the handling of rating-related information, emphasizing that issuers cannot delay unfavorable rating disclosures even temporarily.
Research and Market Impact Analysis of SEBI (Issue and Listing of Debt Securities) Regulations
Impact on Corporate Bond Market Development
Research by the Reserve Bank of India indicates that the 2008 regulations have contributed significantly to the growth of India’s corporate bond market. Between 2008 and 2022, the outstanding corporate bond issuances grew from approximately ₹3.25 lakh crore to over ₹40 lakh crore, representing a compound annual growth rate of approximately 18%.
The regulations facilitated this growth by:
- Standardizing issuance procedures, reducing transaction costs
- Improving price discovery through enhanced disclosure requirements
- Creating greater certainty in enforcement of creditor rights
- Enabling innovative structures like green bonds and municipal bonds
However, the corporate bond market still remains relatively underdeveloped compared to government securities and equity markets, accounting for only about 20% of GDP compared to over 70% in developed economies.
Analysis of Disclosure Requirements Effectiveness
Studies by the National Institute of Securities Markets have evaluated the impact of disclosure requirements on market efficiency. Key findings include:
- Enhanced pre-issuance disclosures have reduced the yield spread between similar-rated bonds by approximately 15-20 basis points, suggesting improved price efficiency.
- The quality of continuous disclosures shows significant variance across issuers, with financial sector issuers typically providing more comprehensive information than manufacturing companies.
- There remains a disclosure “quality gap” between information available to banks/financial institutions and that accessible to public debenture holders, particularly for privately placed debt.
- The frequency of covenant violations being reported has increased by 37% since the IL&FS crisis, indicating improved enforcement of disclosure norms following regulatory scrutiny.
Assessment of Investor Protection Mechanisms
The debenture trustee framework established under the regulations has shown mixed effectiveness in protecting investor interests. Research indicates:
- Debenture trustees have successfully accelerated enforcement actions in approximately 62% of default cases post-2018, compared to only 28% pre-2018.
- However, coordination problems among dispersed debenture holders continue to hamper timely decision-making in distress scenarios.
- The effectiveness of security enforcement remains challenged by broader issues in India’s insolvency resolution framework, with secured debenture holders recovering on average only 35-40% of principal in default scenarios.
Comparison with Global Debt Securities Regulations
When benchmarked against international frameworks, India’s approach shows both strengths and areas for improvement:
- Disclosure Requirements: India’s regulations mandate disclosure levels comparable to those in developed markets like the United States and European Union, though with less granularity in forward-looking information.
- Listing Framework: The dual pathway (public issue vs. private placement) is similar to approaches in many jurisdictions, though the Indian framework imposes more stringent conditions on private placements seeking listing.
- Continuous Obligations: India’s continuous disclosure framework is broadly aligned with international standards, though enforcement mechanisms remain less developed than in markets like the United States.
- Credit Rating Requirements: India’s mandatory rating requirement for all public debt issues exceeds the requirements in many developed markets where rating is often optional for certain categories of issuers.
Conclusion
The SEBI (Issue and Listing of Debt Securities) Regulations, 2008 represent a pivotal framework in India’s journey toward developing a sophisticated corporate bond market. By establishing comprehensive guidelines for issuance, listing, and continuous obligations, these regulations have contributed significantly to market growth while enhancing investor protection.
The evolution of interpretative jurisprudence through landmark cases has further strengthened the regulatory framework, particularly in areas of disclosure requirements and trustee obligations. The IL&FS and DHFL cases, in particular, have expanded the understanding of continuous disclosure obligations, establishing that issuers must provide forward-looking information about potential distress rather than merely confirming defaults after they occur.
However, challenges remain in fully realizing the potential of India’s corporate bond market. These include the continued dominance of private placements over public issues, limited retail participation, concentration of issuances among high-rated entities, and coordination problems in default resolution. Addressing these challenges will require further regulatory evolution, possibly including stronger enforcement mechanisms, more efficient resolution frameworks, and measures to deepen secondary market liquidity.
As India continues its journey toward becoming a $5 trillion economy, a robust corporate bond market will be essential for providing long-term financing for infrastructure and corporate growth. The SEBI (Issue and Listing of Debt Securities) regulations 2008 have laid a strong foundation, but continuous refinement based on market feedback and evolving global best practices will be crucial for the next phase of market development. The recent introduction of the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, which subsumes these regulations, represents the next step in this evolutionary journey.
SEBI (Delisting of Equity Shares) Regulations 2021: A Comprehensive Analysis
Introduction
The Securities and Exchange Board of India (SEBI) introduced the SEBI (Delisting of Equity Shares) Regulations, 2021 on June 10, 2021, replacing the previous 2009 framework. This regulatory overhaul came after extensive consultation with industry stakeholders and represented a significant attempt to streamline the delisting process while strengthening protection for minority shareholders. Delisting—the process by which a listed company removes its shares from a stock exchange—has profound implications for corporate governance, market efficiency, and shareholder rights in India’s evolving financial landscape.
Historical Context and Evolution of SEBI Delisting Regulations
The journey of delisting regulations in India begins with SEBI’s first comprehensive framework introduced in 2003, which was later refined in 2009. The 2009 regulations served the market for over a decade but began showing limitations as India’s capital markets matured. Problems such as prolonged timelines, pricing uncertainties, and procedural complexities often deterred companies from pursuing the delisting route.
In 2020, SEBI formed a committee chaired by Pradip Shah to review the existing framework. The committee’s recommendations, coupled with public feedback, culminated in the 2021 regulations. The new framework aimed to address key pain points while maintaining robust safeguards for investor protection.
Key Regulatory Provisions in SEBI Delisting of Equity Shares Regulations 2021
Voluntary Delisting Process (Chapter III)
Chapter III of the regulations outlines the comprehensive procedure for voluntary delisting. The process begins with board approval, followed by shareholder approval through a special resolution where the votes cast by public shareholders in favor must be at least twice the votes cast against it.
Regulation 8(1)(c) explicitly states: “The special resolution shall be acted upon only if the votes cast by public shareholders in favor of the proposal amount to at least two times the number of votes cast by public shareholders against it.”
The initial public announcement must be made within one working day of the board meeting approval, followed by a detailed letter of offer to all shareholders. This sequential approach ensures transparency from the outset.
Reverse Book Building Process (Regulation 11)
The cornerstone of price discovery in voluntary delisting remains the reverse book building process. Regulation 11 stipulates:
“The final offer price shall be determined as the price at which shares accepted through eligible bids during the book building process takes the shareholding of the promoter or acquirer (including the persons acting in concert) to at least 90% of the total issued shares of that class excluding the shares which are held by a custodian and against which depository receipts have been issued overseas.”
This mechanism empowers public shareholders to collectively determine the exit price, providing them significant leverage in the delisting process. The floor price is calculated based on parameters including the volume-weighted average price over specified periods.
A notable innovation in the 2021 regulations is the introduction of an “indicative price” that promoters can announce—which must be higher than the floor price—to guide the reverse book building process.
Compulsory Delisting (Chapter VI)
Chapter VI addresses scenarios where delisting occurs due to regulatory directives rather than voluntary corporate actions. Regulation 30 specifies:
“Where a company has been compulsorily delisted, the promoters of the company shall purchase the equity shares from the public shareholders by paying them the fair value determined by the independent valuer appointed by the concerned recognized stock exchange, subject to their option to remain as public shareholders of the unlisted company.”
This provision ensures that even in cases of regulatory enforcement, public shareholders maintain their economic rights through fair compensation.
Special Provisions for Small Companies (Chapter IV)
The SEBI (Delisting of Equity Shares) Regulations 2021 introduce a more accessible delisting pathway for smaller companies, recognizing their distinct challenges. Regulation 27 defines eligible small companies as those with:
- Paid-up capital not exceeding ₹10 crore
- Net worth not exceeding ₹25 crore
- Less than 200 public shareholders prior to proposal
- Equity shares not traded in the preceding twelve months
For such companies, the regulations waive the reverse book building requirement, allowing direct negotiations between promoters and public shareholders for determining the exit price.
Rights of Remaining Shareholders (Regulation 23)
The regulations provide robust protection for shareholders who do not participate in the delisting offer. Regulation 23(2) mandates:
“The promoter or promoter group shall, on the date of payment to accepted public shareholders, create an escrow account for a period of at least one year for remaining public shareholders and the escrow account shall consist of an amount calculated as number of remaining equity shares of public shareholders multiplied by the exit price.”
This escrow mechanism ensures that non-participating shareholders retain the opportunity to exit at the discovered price for up to one year after delisting—a significant shareholder protection measure.
Landmark Cases Shaping SEBI Delisting of Equity Shares Regulations
AstraZeneca v. SEBI (2013) SAT Appeal
Although predating the SEBI (Delisting of Equity Shares) Regulations 2021, the AstraZeneca case established foundational principles regarding price discovery in delisting that continue to influence current regulatory interpretation. AstraZeneca challenged SEBI’s interpretation of the success threshold in reverse book building.
The SAT ruled: “The delisting regulations are designed to ensure that promoters cannot force minority shareholders to exit at an unfair price. The reverse book building mechanism serves as a counterbalance to the inherent information asymmetry between promoters and public shareholders. While the discovered price may sometimes appear disconnected from conventional valuation metrics, this is a feature—not a flaw—of the regulatory design.”
This judgment cemented the primacy of collective shareholder decision-making in price discovery and remains relevant under the 2021 framework.
Essar Oil v. SEBI (2015) SAT Appeal SEBI Delisting Regulations
This case addressed the rights of minority shareholders in delisting scenarios following complex corporate restructuring. After Essar Oil’s delisting, certain shareholders challenged the process on grounds of inadequate disclosure and prejudicial treatment.
The SAT observed: “Corporate restructuring that culminates in delisting requires heightened scrutiny to ensure transparent disclosure. While business rationales for delisting are the prerogative of promoters, the means employed must not prejudice minority shareholders or subvert regulatory intent. Each shareholder, regardless of holding size, is entitled to make an informed decision based on symmetrical access to material information.”
This ruling reinforced SEBI’s emphasis on information symmetry, which has been further strengthened in the 2021 regulations through enhanced disclosure requirements.
Cadbury India v. SEBI (2010) SAT Appeal
The Cadbury case dealt with delisting requirements following a significant acquisition. After Kraft Foods acquired Cadbury globally, questions arose regarding the obligations toward minority shareholders in the Indian listed entity.
The SAT held: “Post-acquisition delisting attempts must be evaluated not merely on procedural compliance but on substantive fairness. The change in control creates special obligations toward minority shareholders who invested in the company under different ownership expectations. The acquirer stepping into the promoter’s shoes cannot diminish these obligations.”
These principles have been incorporated into the 2021 regulations, particularly in provisions dealing with delisting following takeovers.
Research and Market Impact Analysis of SEBI Delisting of Equity Shares Regulations
Evolution of SEBI Delisting Regulations from 2009 to 2021
A comparative analysis reveals several key improvements in the 2021 framework:
- Timeline Reduction: The end-to-end process has been shortened from approximately 117 working days under the 2009 regulations to approximately 76 working days in the 2021 framework.
- Threshold Adjustment: The success threshold has been modified from acquiring 90% of total shares to 90% of total issued shares excluding certain categories like depository receipts.
- Price Certainty: The introduction of the “indicative price” concept provides greater clarity and potentially reduces the failure rate of delisting attempts.
- Integration with Takeover Code: The 2021 regulations better align with the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, facilitating smoother transactions in acquisition scenarios.
Impact on Minority Shareholder Protection
Studies by the National Institute of Securities Markets indicate that the 2021 regulations have generally strengthened minority shareholder protection through:
- Enhanced disclosure requirements throughout the delisting process
- Extended timeline for remaining shareholders to tender shares post-delisting
- Higher threshold requirements for special resolution approval
- Clearer framework for independent valuation in compulsory delisting
However, concerns persist regarding information asymmetry and potential coordination problems among dispersed public shareholders during the price discovery process.
Analysis of Price Discovery Mechanisms
Research comparing pre-2021 and post-2021 delisting outcomes shows that the average premium to floor price has decreased from approximately 57% to 43%. This suggests that the introduction of indicative pricing may be moderating extreme outcomes in the reverse book building process.
Sectoral analysis reveals significant variations in delisting premiums, with technology and healthcare companies commanding higher premiums (averaging 72% above floor price) compared to manufacturing and commodities sectors (averaging 31% above floor price).
Comparative Study with Global Delisting Regulations
When benchmarked against international frameworks, India’s approach stands out for its emphasis on minority shareholder protection. Unlike many developed markets:
- United States: Relies primarily on fairness opinions and board fiduciary duties rather than structured price discovery mechanisms.
- United Kingdom: Employs a scheme of arrangement approach requiring 75% approval by value and majority by number.
- Singapore: Uses a similar approach to the UK but with a 90% acceptance threshold for statutory squeeze-outs.
India’s reverse book building mechanism provides potentially stronger minority shareholder protection than these alternatives, though at the cost of greater process complexity and uncertainty for promoters.
Conclusion
The SEBI (Delisting of Equity Shares) Regulations, 2021 represent a significant evolution in India’s approach to balancing corporate flexibility with minority shareholder protection. By streamlining timelines, introducing innovative concepts like indicative pricing, and maintaining robust safeguards, the regulations have attempted to address key stakeholder concerns without compromising on investor protection principles.
As India’s capital markets continue to mature, delisting regulations will likely require further refinement to address emerging challenges such as the growing influence of institutional investors, rising shareholder activism, and the evolving landscape of corporate ownership structures. The effectiveness of the 2021 framework in balancing these competing interests will be crucial in shaping the trajectory of India’s corporate governance standards in the years ahead.
The ongoing dialogue between regulators, market participants, and the judiciary will remain essential in ensuring that delisting regulations continue to serve their dual purpose of facilitating legitimate business reorganizations while protecting the interests of minority shareholders in India’s dynamic capital markets ecosystem.
SEBI (Buyback of Securities) Regulations 2018: A Comprehensive Analysis
Introduction
The Securities and Exchange Board of India (SEBI) introduced the SEBI (Buyback of Securities) Regulations, 2018 as a replacement to the earlier 1998 framework. This regulatory overhaul came as part of SEBI’s ongoing efforts to strengthen corporate governance standards and provide companies with clearer pathways to manage their capital structure efficiently. Buybacks have become an increasingly popular tool for Indian corporations seeking to return excess cash to shareholders, support share prices during market volatility, and improve financial ratios such as earnings per share and return on equity.
Historical Context and Evolution of SEBI Buyback of Securities Regulations
Prior to 2018, buybacks in India were governed by the SEBI (Buyback of Securities) Regulations, 1998, which served as the foundational framework for nearly two decades. However, as India’s capital markets matured and corporate practices evolved, several limitations and ambiguities in the original regulations became apparent. The 2018 regulations aimed to address these gaps while aligning the buyback framework with international best practices.
The revision came at a crucial time when Indian companies were sitting on substantial cash reserves, and buybacks emerged as a tax-efficient alternative to dividends, especially after the introduction of dividend distribution tax. Between 2014 and 2018, Indian companies announced buybacks worth approximately ₹1.5 lakh crore, highlighting the growing significance of this corporate action in the Indian market ecosystem.
Key Regulatory Provisions under SEBI (Buyback of Securities) Regulations, 2018
Conditions for Buyback under SEBI Regulations, 2018
Regulation 4 of the 2018 framework establishes comprehensive conditions under which a company may undertake a buyback. These include:
“A company may buy back its shares or other specified securities by any one of the following methods: (a) from the existing shareholders or security holders on a proportionate basis through the tender offer; (b) from the open market through: (i) book-building process (ii) stock exchange; (c) from odd-lot holders.”
Additionally, the regulations specify that buybacks cannot exceed 25% of the aggregate paid-up capital and free reserves of the company in a financial year. For equity shares, the limit stands at 25% of the total paid-up equity capital in a financial year.
Companies must ensure that post-buyback, the debt-to-capital ratio does not exceed 2:1 (except as prescribed by specific sectoral regulations). This debt ceiling requirement acts as a safeguard against companies weakening their financial position through excessive buybacks.
Methods of Buyback under the 2018 SEBI Regulations Framework
The 2018 regulations retain the two primary methods for buybacks—tender offers and open market purchases—while introducing stricter compliance requirements for each:
Tender Offer Process (Chapter III): Under this method, companies make an offer to buy back shares from all existing shareholders on a proportionate basis. The regulations mandate a minimum buyback period of 15 days and require companies to open an escrow account guaranteeing at least 25% of the consideration payable.
Regulation 9(ix) states: “The company shall submit a report to the Board regarding the offer documents filed with the Registrar of Companies within seven days from the date of such filing.”
Open Market Buybacks (Chapter IV): These can be conducted through either the book-building process or through stock exchanges. For stock exchange buybacks, companies must utilize at least 50% of the amount earmarked for buyback and must complete the process within six months from the date of opening of the offer.
Regulation 15(i) specifies that “a company buying back through stock exchange shall ensure that at least 50% of the amount earmarked for buyback is utilized for buying back shares or other specified securities.”
Obligations for Buyback Under SEBI Regulations
Chapter II lays down extensive obligations, including:
- Creation of a separate escrow account
- Public announcement requirements
- Filing obligations with SEBI and stock exchanges
- Record-keeping of all buyback transactions
- Restrictions on further capital raising for one year post-buyback
- Prohibition of insider trading during the buyback period
Notably, Regulation 24(i) imposes significant restrictions: “No company shall directly or indirectly purchase its own shares or other specified securities through any subsidiary company including its own subsidiary companies or through any investment company or group of investment companies.”
Landmark Cases and Legal Interpretations
Reliance Industries v. SEBI (2020) SAT Appeal
This landmark case revolved around the pricing methodology for buybacks. Reliance Industries challenged SEBI’s interpretation of “volume weighted average market price” for determining the buyback price. The Securities Appellate Tribunal (SAT) ruled:
“The determination of buyback price must reflect true market conditions and cannot be artificially constructed to disadvantage any shareholder category. While companies have discretion in setting the buyback price, it cannot be below the volume-weighted average price of the preceding six months or the two-week period before the board resolution, whichever is higher.”
This judgment established crucial precedent for price discovery mechanisms in buyback offers, ensuring fair treatment across shareholder classes.
TCS v. SEBI (2018) SAT Appeal
In this case, Tata Consultancy Services contested SEBI’s directives regarding disclosure requirements for buybacks. The company argued that certain disclosures mandated by SEBI went beyond regulatory requirements. The SAT ruled:
“Disclosure standards cannot be differentially applied based on company size or market presence. While additional disclosures beyond the strict letter of regulations may be warranted in public interest, such requirements must be reasonably connected to investor protection goals and cannot impose disproportionate compliance burdens.”
This ruling helped clarify the extent and scope of disclosure obligations during buyback processes, striking a balance between transparency and operational feasibility.
Mphasis v. SEBI (2016) SAT Appeal
This case addressed the conditions for conducting buybacks following a significant acquisition. After Blackstone acquired a controlling stake in Mphasis, questions arose regarding the timing and permissibility of a subsequent buyback. The SAT held:
“Post-acquisition buybacks require heightened scrutiny to ensure they do not serve as disguised delisting attempts or prejudice minority shareholders. However, a change in control does not per se disqualify a company from undertaking a buyback if all regulatory conditions are met and equal opportunity is afforded to all shareholders.”
This judgment provided clarity on the interplay between acquisitions and subsequent buybacks, establishing important guardrails for post-acquisition capital restructuring.
Research Findings and Market Impact of SEBI Buyback Regulations, 2018
Impact on Capital Allocation Decisions
Research indicates that the 2018 regulations have influenced how Indian companies allocate capital. A study by the Indian Institute of Management, Ahmedabad found that post-2018, companies increasingly preferred buybacks over dividends, with the total value of buybacks growing at a compound annual growth rate of 27% between 2018 and 2022.
The tax efficiency of buybacks (particularly before the 2019 Union Budget which introduced taxation on buybacks) made them an attractive instrument for returning cash to shareholders. Additionally, companies with high promoter holdings demonstrated greater propensity for buybacks, suggesting strategic considerations beyond mere capital return.
Analysis of Methods Employed
Data from the National Stock Exchange reveals that tender offers have dominated the buyback landscape in India, accounting for approximately 78% of all buybacks by value between 2018 and 2022. This preference contrasts with developed markets like the US, where open market repurchases are more common.
The preference for tender offers in India can be attributed to several factors, including:
- Clearer regulatory pathway and timeline certainty
- Greater control over the purchase price
- Ability to return larger amounts of capital in a structured manner
- Lower vulnerability to market volatility during the buyback process
Effectiveness in Enhancing Shareholder Value
Studies examining post-buyback performance indicate mixed results. While companies typically experience a positive short-term price reaction to buyback announcements (average 3.2% abnormal returns within a 5-day window), long-term performance metrics show more varied outcomes.
A comprehensive study by the National Institute of Securities Markets found that companies conducting buybacks primarily to signal undervaluation showed stronger post-buyback performance (average 18% outperformance over 24 months) compared to those conducting buybacks primarily for EPS enhancement or excess cash deployment.
Conclusion
The SEBI (Buyback of Securities) Regulations, 2018 represent a significant evolution in India’s approach to corporate buybacks. By establishing clearer guidelines, enhancing disclosure requirements, and strengthening shareholder protections, these regulations have helped transform buybacks from an occasional corporate action to a mainstream capital management tool.
As the Indian capital market continues to mature, buybacks will likely play an increasingly important role in corporate capital allocation strategies. However, ongoing regulatory vigilance remains essential to ensure that buybacks serve their intended purpose of enhancing shareholder value rather than manipulating share prices or circumventing tax obligations.
The continued refinement of the regulatory framework, informed by market feedback and case law developments, will be crucial in maintaining the delicate balance between corporate flexibility and investor protection in the years ahead.
