Pedestrians stroll by a digital broadcast on the facade of the Bombay Stock Exchange in Mumbai. — AFP file
Question: Recently, several small and medium enterprises (SMEs) offered their shares through Initial Public Offerings (IPOs). Many investors were eager to participate in these IPOs. However, after listing, the prices of these shares have declined. Are there any safeguards in place to protect the interests of the investing public?
Answer: It is indeed the case that some investors have faced losses in SME IPOs. To empower investors to make informed decisions before investing in SME IPOs, it is proposed that the offer document will be available at least 21 days prior to the issue date. Currently, such offer documents are submitted to the stock exchange where the shares are to be listed, and the document is made available to the public just a few days before the IPO opening date. This has been found to be detrimental to the interests of investors. Additionally, it is proposed that the enterprise offering the IPO should have a minimum operating profit of Rs. 30 million in two out of three years before filing the IPO documents. Currently, there is no such requirement. Moving forward, an IPO by an SME will not be permitted if the primary objective is to use the IPO funds to repay loans of the promoter group. Furthermore, listed SMEs are now required to disclose their operating results on a quarterly basis and provide details of the shareholding pattern. These measures are intended to safeguard the interests of retail investors, as it has been observed that SME IPOs carry a higher risk.
Question: I work for a multinational insurance company looking to enter the Indian market. However, there are restrictions on the amount of shareholding a foreign company can have in an Indian entity. I’ve heard that some changes are in the works. Can you provide some insight?
Answer: Currently, there are only 12 life insurance companies, 26 general insurers, and 6 standalone health insurance companies in India. General Insurance Corporation of India is the sole reinsurer. The foreign direct investment limit in an insurance company is currently set at 74% of the total share capital. The government is now considering increasing this limit to 100% of the paid-up share capital. This move is being considered to allow large multinational insurance companies to establish businesses in India and operate on their own terms without an Indian partner. This is expected to enhance insurance penetration in India, which is currently at a low level of 4% of the population. To achieve this, an Insurance Amendment Bill is likely to be introduced in the winter session of Parliament. This bill will also relax conditions for the appointment of directors, allowing foreign individuals to be appointed as key managerial personnel. The proposed legislation will also permit insurance companies to issue both life and non-life covers and ease solvency requirements, freeing up capital for insurance companies. Additionally, individual insurance agents will be allowed to sell policies of multiple companies, whereas currently, they are limited to being agents of only one life and one general insurance company, which is considered unreasonable. These amendments have been accepted and approved by the Insurance Regulatory and Development Authority of India.
Question: My nephew in India is planning to gain admission to an educational institution with limited seats. He wants to join a coaching institute that has advertised its students' success in securing admissions. Can such advertisements be trusted?
Answer: The Central Consumer Protection Authority recently reported that investigations revealed coaching institutes were concealing information from prospective students, luring them to enroll in courses based on misleading advertisements. Guidelines have been issued to coaching institutes to protect the interests of students. These guidelines require institutes to disclose relevant information, such as the names of students who have secured ranks and the courses for which they have been admitted. Additionally, coaching centers must disclose the facilities, resources, and infrastructure provided for teaching. When these guidelines are breached, the CCPA issues notices and levies fines. So far, 45 notices have been issued to coaching institutes for misleading advertisements. A penalty of Rs1 million is imposed for the first offense, and Rs5 million for subsequent offenses. The authority also has the power to order the withdrawal of misleading advertisements and prohibit their publication for one to three years.
H. P. Ranina is a practicing lawyer specializing in corporate and tax laws of India.
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