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Foreign portfolio investors cannot enter into a non-disclosure undertaking (NDU) with anyone, SEBI has clarified.
In an informal guidance given to UBS-FPI, SEBI has categorically said foreign portfolio investors (FPIs) have to disclose the NDU details, if any entered into with any entity.
NDU is an agreement given by a shareholder to another person (generally a lender) saying that the shares held by him/her/entity would not be transferred or sold to any other parties without taking the prior approval of the lender.
UBS AG, a Category-II foreign portfolio investor, sought clarification as the word ‘encumbrance’ has not been defined in the FPI regulations. UBS further said Regulation 32(2)(d) imposes an obligation on the designated depository participant engaged by the FPI to ensure that equity shares held by an FPI are free from all ‘encumbrances’.
According to SAST Regulations relating to disclosures of shareholding and control, an inclusive definition of the term ‘encumbrance’ includes pledges, liens or such other transaction, by whatever name called. “Disclosures to be made to the stock exchanges... specifically by the promoter of such company upon creation of any encumbrance by such promoter over the shares held by him in the company.”
In light of the above, UBS asked SEBI whether the term ‘encumbrance’ used in Regulation 32(2)(d) of (FPI Regulations) would include NDU in relation to FPIs who are investors in the capacity as ‘acquirers’ and not ‘promoters’ given that all existing references and connotations to this term have been made specifically in connection with promoters under the SAST regulations.
FPIs are ‘restricted’: SEBI
UBS also sought to know whether FPIs are restricted from executing NDUs with third parties, whereby they provide a limited undertaking not to transfer, dispose of or create any encumbrances over the equity shares held by them in listed companies in India with a designated depository participant or any part thereof without creating any rights in favour of any third party on such equity shares.
SEBI clearly said the term ‘encumbrance’ used in Regulation 32(2)(d) of the SEBI (FPI) Regulations, 2014, include “non-disposal undertaking(s)” and FPIs are ‘restricted’ from executing non-disposal undertakings.
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