TaxTMI 
TaxTMI 
2025 (11) TMI 690
X X X X Extracts X X X X
X X X X Extracts X X X X
....tes i/b. The Law Point for the Respondent No. 1., Mr. Gaurav Joshi, Senior Advocate with Mr. Robin Shah, Advocate i/b. Bodhi Legal for the Respondent No. 2 ORDER Per : Justice P. S. Dinesh Kumar, Presiding Officer These two appeals are directed against a common order dated March 28, 2025 issued by the Manager, Alternative Investment Fund and Foreign Portfolio Investors Department, SEBI Securities and Exchange Board of India rejecting appellants' applications filed under Regulation 43B of the SEBI (FPI) Regulations, 2019 Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019. with a prayer inter alia to make the pending payment of 75% against the warrants of private respondent companies. 2. We have heard Shri Janak Dwarkadas and Shri P.N. Modi, Senior Advocates for appellants and Shri Rustomjee, Senior Advocate for the SEBI. 3. Brief facts of the case are, Elara India Opportunities Fund Limited ('Elara' for short) in Appeal No. 171 of 2025 and Vespera Fund Limited ('Vespera' for short) in Appeal No. 172 of 2025 are companies incorporated in the Republic of Mauritius and also registered as Category-1 FPI Foreign Portfolio Investor wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....osures by the end of the day. The appellants' failure to make disclosures rendered their FPI licenses invalid and appellants' accounts were blocked for fresh purchases across all securities and FPI was required to liquidate all its securities and exit the Indian securities market by surrendering its FPI registration within 180 calendar days i.e., on or before September 8, 2024. 8. SEBI issued another Circular Circular bearing reference No. SEBI/HO/AFD/AFD-PoD-2/P/CIR/2024/77 dated June 5, 2024. in June, 2024 stating that if an FPI failed to provide granular details and remained unliquidated post the expiry of the 180 days, an additional 180 days period would be provided subject to a financial disincentive of 5% of the sale proceeds to be deducted by custodian of FPI and remitted to the SEBI's IPEF Securities and Exchange Board of India - Investor Protection and Education Fund. After the expiry of the 360 days period, securities remaining unsold in the account of FPI shall be deemed to have been compulsorily written-off by the FPI i.e., by March 7, 2025. Thereafter, the securities shall be transferred to the SEBI empanelled broker who shall sell the securities and the sale procee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....led to factor in convertible securities and their treatment. • The June 2024 Circular was issued almost 3 months post the last date i.e., on March 12, 2024 for making granular disclosures. It does not envisage that residual securities may include warrants that are not transferable and neither the August Circular nor the June 2024 Circular dealt with the treatment of warrants or convertible securities. The DDP was unclear on the treatment of warrants and had to seek clarification from SEBI. • Conversion of warrants by the FPIs into equity shares does not amount to 'purchases'. SEBI and DDP did not permit the appellants to make payment of balance 75% of the amount in question so as to enable the appellants to convert warrants into shares and sell them in securities market. • The appellants were continuously communicating with the DDP to avail PIV exemption from making granular disclosures. The appellants started communicating with the DDP with respect to the PIV exemption from January 9, 2024 and such exemption request was rejected on March 12, 2024 i.e., one day prior to appellants' registration becoming invalid. If the exemption request had be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....€¢ SEBI's IPEF will also not benefit as SEBI's broker will not be able to sell the warrants in the market as the warrants are non-transferable currently. • SEBI's stance in the current matter is detrimental to the securities market and contrary to its objectives of investor protection. 14. Shri P.N. Modi appearing for Vespera argued in similar lines as Shri Janak Dwarkadas, learned Senior Advocate for Elara. 15. In reply, Shri Shiraz Rustomjee, learned Senior Advocate for SEBI submitted that: • SEBI is striving to identify the real, natural persons behind certain offshore entities holding massive stakes in certain Indian entities and to find out whether these are genuine FPIs or just circular, promoter-linked structures. But the appellants have refused to cooperate with SEBI. • Summons were issued to the appellants wherein they were called upon to provide the details of Beneficial Owner (natural person) and economic interest of Participating Redeemable Shareholders (PR Shareholders) as well as the ultimate beneficial owner. • In its reply to the summons, Elara has stated that it has only 2 investors (Oyster Bay Fund Limi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....documents from the DDP for exemption. The DDP rejected appellants' exemption request on March 12, 2024 and the appellants waited for more than seven months before re-engaging with the DDP. On October 23, 2024, the appellants reached out to the DDP, sought advice with respect to warrants they had subscribed. This was the first time that the appellants indicated to the DDP that they had purchased warrants in respect of which complete payments were not yet done. The appellants filed their separate applications under Regulation 43B of FPI Regulations on February 4, 2025 i.e., just one month prior to the due date of exit from the Indian market. • The appellants had several alternatives available to avoid the current situation. The appellants were very well aware about the disclosure requirements and the consequences of its non-disclosure. Appellants had ample time to approach SEBI, but they filed the exemption application on February 4, 2025. Appellants were very much aware that if they did not disclose, they would have no option but to leave the Indian Securities Market. Being fully aware of these aspects, they subscribed to the warrants between October, 2023 and February,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions, subject to such conditions as the Board deems fit to impose in the interests of investors and the securities market and for the development of the securities market, if the Board is satisfied that: (a) the non-compliance is caused due to factors beyond the control of the entity; or (b) the requirement is procedural or technical in nature." 20. A perusal of August 2023 circular Circular bearing reference No.SEBI/HO/AFD/AFD-PoD-2/CIR/P/2023/148 shows that it has been issued based on the observation that certain FPIs were holding concentrated portion of their equity portfolio in a single investee Company and such concentrated investments had raised concern with a possibility that promoters of such investee companies acting in concert could be using FPI route to circumvent the regulatory requirement such as disclosure under SAST Regulations Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 or maintaining MPS norms in a listed company. Further, recognizing the inherent risk of opportunistic takeover of Indian Companies the Government of India issued a press note requiring an entity of a country that shar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e in nature, the failure to liquidate within the time period is a technical non-compliance. It was argued that SEBI by a circular date June, 2024 extended the time-line for liquidation of securities by 180 more days. Similarly, SEBI has also issued a notification on August 1, 2024 exempting the University funds from disclosure requirements and another circular dated April 9, 2025 increasing the threshold for requirement to disclose from INR 25,000 Crores to INR 50,000 Crores. So far as University funds are concerned, they fall in different category and not similar to the appellants' funds. Further, raising the disclosure requirement to INR 50,000 Crore is a policy matter and that circular is not under challenge. 23. Both Elara and Vespera, vide their respective applications dated February 4, 2025 requested the SEBI to allow them to make remaining 75% payment with regard to the warrants allotted by the private respondent companies Mishtann Foods Ltd., Spicejet Ltd. and Felix Industries Ltd. by Elara, Mishtann Foods Ltd. and Rushil Decor Ltd. by Vespera, to receive shares in their demat accounts and to sell them. 24. In substance, appellant's main contention is that since their....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re and re-align their portfolios. However, at the same time they also chose to subscribe to the warrants of private respondent companies. 28. Regulation 43B provides for exemption from strict enforcement of any of the provisions of the Regulations. The Regulation also makes it clear that such exemption shall be in the interest of investors, the securities market and its development. The exemption can be granted if the Board is satisfied that non-compliance was caused due to factors beyond the control of the entity or the requirement is procedural or technical in nature. 29. In so far as the purpose of Regulation 43B, namely, the interest of investors and the securities market is concerned, as recorded herein above the August 2023 circular has been issued keeping in view the concerns that entities with large Indian equity portfolios could potentially disrupt the orderly functioning of securities markets by misusing the FPI route. The message sent through the circular was loud and clear, to either make disclosure or quit. 30. The following two lists of dates given in tables 1 & 2 of the impugned order are relevant. Table: 1 Name of the FPI Name of the Company Dat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dings and exit the Indian securities Market within 180 days in terms of the provisions of the SEBI circular dated August 24, 2023. Additional 180 days for liquidation with 5% disincentive 09-Sept-2024 to 07-Mar-2025 Such FPIS that had not liquidated their holdings as mentioned above, were given an additional 180 days tine to liquidate their holdings and exit the market, subject to 5% disincentive in terms of SEBI circular dated June 05, 2024. Thereafter, the residual assets of the FPI would be deemed to have been written off by the FPI, and the proceeds of such assets would accrue to SEBľ s Investor Protection and Education Fund. 31. Table 1 shows subscription of all warrants is after issuance of August 2023 circular. 32. The list of dates in the memorandum of appeal indicates that the DDP/Custodian vide email dated October 23, 2023, sent to the appellants provided an SOP in relation to SEBI's circular. 33. Thus, it is abundantly clear that the appellants had full knowledge of the August 2023 circular by October 23, 2023 and considering their conscious decision not to disclose granular details, decided to liquidate investments in securities of Indian companie....