2015 (10) TMI 266

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....truments known as 'participatory notes' which are nothing but 'offshore derivative instruments' (ODIs). The other aspect is with regard to the press  report which appeared in 'THE HINDU', New Delhi Edition on July 27, 2015 with regard to the alleged statement made by the Finance Minister.   2. The entire petition is based on the premise that a participatory note is an illegal instrument and is prohibited under the Prevention of Money Laundering Act, 2002, Foreign Exchange Management Act, 1999 and the SEBI Rules and Regulations. This is clearly stated in paragraph 3 of the writ petition.   3. Mr Sanjay Jain, the learned Additional Solicitor General of India, has placed before us the Securities and Exchange Board of India (Fo....

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.... of a country whose securities market regulator is a signatory to International Organization of Securities Commission's Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to bilateral Memorandum of Understanding with the Board; (c) the applicant being a bank, is a resident of a country whose central bank is a member of Bank for International Settlements;   (d) the applicant is not resident in a country identified in the public statement of Financial Action Task Force as: (i) a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or (ii) a jurisdiction that has not made sufficient progress in addressing the deficien....

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...." shall mean a bilateral Memorandum of Understanding between the Board and the overseas regulator that, inter alia, provides for information sharing arrangements under clause (ib) of sub section (2) of Section 11 of the Act." 5. Foreign portfolio investors have been categorized into three separate categories in terms of Regulation 5 of the said Regulations. We need not go into that aspect of the matter. It is, however, pertinent to note Regulation 22 of the said Regulations, which prescribes the conditions for  issuance of offshore derivative instruments (ODIs), of which, a participatory note is an example. Regulation 22 of the said Regulations reads as under:-   "Conditions for issuance of offshore derivative instruments 22. ....

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....s and when and in such form as the Board may specify. (4) Any offshore derivative instruments issued under the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995 before commencement of these regulations shall be deemed to have been issued under the corresponding provision of these regulations." 6. It is important to note that Regulation 22 (2) clearly stipulates that a foreign portfolio investor has to ensure that the further issue or transfer of any offshore derivative instruments issued by or on its behalf, 'is made only to persons who are regulated by an appropriate foreign regulatory authority'.   7. Regulation 22 (3) is also important inasmuch as it clearly empowers the SEBI to require a....