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Amit Vyas

THE SEBI (Informal Guidance) Scheme 2003 {the Scheme} was introduced by SEBI with effect from June 24 to enable any market intermediary (the applicant) registered with SEBI as also any listed company (the applicant) to obtain certain documents.

One, a `no-action letter', by virtue of which the department concerned in SEBI would advise whether it would recommend any action under any of the provisions of the SEBI Act, or rules, etc., thereunder or under any law being administered by SEBI, in respect of a proposed transaction described by the applicant in his request.

And, two, an interpretive letter by virtue of which the SEBI department concerned would give an interpretation of any of the provisions of the SEBI Act, rules, etc., thereunder or of any Act being administered by SEBI.

However, notwithstanding the benevolent spirit behind the Scheme, which is to promote the interests of the securities market, it cannot be denied that there are some glaring flaws in it. Some of these are:

The Scheme permits only market intermediaries and listed companies to seek informal guidance. In terms of the SEBI (Disclosure and Investor Protection) Guidelines, the term "listed company" means a company defined under Section 3 of the Companies Act, 1956, and whose securities are listed on any recognised stock exchange following a public offering of those securities.

This includes public sector undertakings whose securities are listed on any recognised stock exchange. This means that unlisted companies that seek listing of their securities for the first time through a public offering do not have any means of finding solutions to the problems of interpretation or applicability of the SEBI Act, rules, regulations and guidelines, as applicable to their public offerings. This is not only a serious lacuna but also a discriminatory provision.

Further, the Scheme will not cover trustee companies and asset management companies in the matter of the mutual fund regulations. This is also a lapse as the SEBI (Mutual Funds) Regulations are vast and have several complicated provisions which need clarity.

In the absence of any enabling provisions which entitle them to the Scheme, such companies may find it very difficult to interpret such complicated provisions. In today's market conditions, mutual funds play an important role for common investors and it would be in the interest of these investors if SEBI were to have extended the scheme to such companies also.

There is also a glaring ambiguity in respect of the applicability of the Scheme to the stock exchanges and the recently formed Central Listing Authority (CLA). The Scheme specifically provides that `no-action' letters or `interpretive' letters shall be issued by the department concerned of SEBI.

The Scheme specifically defines the term "Department of SEBI" and includes a division. Thus, while on the one hand, SEBI has been empowered to issue such letters of `no action' and `interpretation' in respect of the provisions governed/administered by it, on the other hand, it excludes from its scope the stock exchanges and the CLA as, technically, they are not departments of SEBI.

It is interesting to note in this regard that while the by-laws on grant of permission for listing of securities are framed by the stock exchanges with SEBI's approval, the administrative act of granting or refusing approval for listing is left to the discretion of the stock exchanges.

Thus, any question arising therefrom cannot be covered by the Scheme as the stock exchange is not a department of SEBI. The terms of the Listing Agreement and the provisions of SEBI (CLA) Regulations 2003 are full of ambiguities and need clarification.

For instance, the newly introduced Clause 49 of the Listing Agreement is ambiguous about such terms as Chief Operating Officer (COO), the legal role of the audit committees in respect of `whistle-blowers', and the enforceability of the provisions relating to an independent director, which are contradictory to similar clauses in the Companies (Amendment) Bill of 2003.

Some of the provisions of the SEBI (CLA) Regulations 2003 are in conflict with the SEBI (Disclosure and Investor Protection) Guidelines 2003, and it is not clear which will prevail.

Further, the aspects of obtaining a letter of recommendation from the CLA for listing securities and obtaining `in-principle approval' for listing from the stock exchanges could have easily been covered by the scope of the Scheme as companies would have sought a `no action' letter in such cases.

In view of the above flaws, SEBI needs to extend the applicability of the Scheme to the stock exchanges and the CLA instead of confining it to the SEBI departments.

(The author is a senior company secretary.)

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