Sebi expands term `encumbrance' for disclosure requirement

The board of the Securities and Exchange Board of India (Sebi) at its meeting on Thursday decided to expand the term “encumbrance” as defined in the Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 by including any restriction on the free and marketable title to shares, by whatever name called, whether executed directly or indirectly.

This may include pledge, lien, negative lien, non-disposal undertaking as also any covenant, transaction, condition or arrangement in the nature of encumbrance,   by whatever name called, whether executed directly or indirectly, Sebi said.
Promoters shall be now required to disclose separately detailed reasons for encumbrance whenever the combined encumbrance by the promoters and persons acting in concert (PACs) exceeds 20 per cent of the total share capital in the company or 50 per cent of their shareholding in the company.
The stock exchanges will maintain the details of such encumbrance along with purpose of encumbrance, on their websites.
The promoters shall be required to declare to the audit committee of the company and to the stock exchanges on a yearly basis, that they along with PACs have not made any encumbrance directly or indirectly, other than already disclosed, during the financial year. 
Sebi said it has taken the above measures in the context of recent concerns with respect to promoter/ companies raising funds from mutual funds/ NBFCs through structured obligations pledge of shares, non-disposal undertakings, corporate/ promoter guarantees and various other complex structures.