Amendment to the Legal Framework on Social Stock Exchange

Amendment to the Legal Framework on Social Stock Exchange

Recently, Securities and Exchange Board of India (“SEBI”), in exercise of its powers under Section 11(1) of the Securities and Exchange Board of India Act, 1992, amended the framework for the Social Stock Exchange (“SSE”), via its circular dated: December 28, 2023 (“Circular”), thereby amending the provisions under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”) and Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”).

The Circular lays down the minimum requirement to be met by a Not-for-Profit Organizations (“NPOs”) for registration with SSE in terms of Regulation 292F of the ICDR Regulations. The requirements include providing a Registration Certificate under Sections 12A/12AA/12AB/10(23C)/10(46) of the Income Tax Act, 1961 (with the said certificates to remain valid for at least the next 12 (twelve) months), and possessing a valid 80G registration under the Income Tax Act, 1961 for those registered under sections 12A/12AA/12AB.

Additionally, the NPOs are required to submit details regarding pending notices or scrutiny cases from all regulatory with and statutory authorities, at the time of making an application for registration.

Past Social Impact

The Circular further listed requirements for details of past social impact as per existing practice of NPOs. This past social impact shall highlight trends in key parameters that are relevant to the NPO for which the NPO seeks to raise funds on SSE, number of beneficiaries, cost per beneficiary and administrative overheads.

Inclusion of Zero Coupon Zero Principal Instruments

The  Circular also detailed the procedure for public issuance of  Zero  Coupon  Zero Principal Instruments by NPOs.

Zero Coupon Zero Principal Instruments are financial instruments that any non-profit organization can issue for raising funds. These instruments are issued without any coupon and no principal amount is payable on their maturity.

The notified amendment to the SSE framework mandates NPOs to file the draft fund raising document (“DFRD”) with the SSE where they are registered, along with the fees and application seeking in principle approval for listing of its Zero Coupon Zero Principal Instruments on the SSE. The DFRD has to encompass all the essential disclosures that are true and enable applicants in making well informed decisions. The DFRD has to be made available, for public comments, on the websites of the both the NPOs and SSE for at least 21 (twenty-one) days.

The SSE shall then provide its observation on the DFRD to the NPOs within 30 days from its filing or from receipt of clarification, and the NPOs shall then incorporate the observations of the SSE within the document and final the final DFRD to the SSE.

The Zero Coupon Zero Principal Instruments shall be in dematerialized form only. An important point to note is that the instruments would not be transferable from the original holder till the expiry of the tenure of the Instrument.

Other notable conditions related to the issuance of the Zero Coupon Zero Principal Instruments specify the minimum issue size to be INR 50,00,000 (Indian Rupees Fifty Lakhs) and minimum application size to be INR 10,000 (Indian Rupees Ten Thousand). The minimum subscription required to be achieved shall be 75 (seventy) per cent of the funds proposed to be raised by the NPO through their issuance, and in case of any under subscription, the NPO has to provide in the fund raising document, the details on the manner of raising balance capital, if such under subscription is between 75-100 per cent and details of the possible impact on achieving their social objectives if such under subscription is not arranged. The funds will be refunded if the subscription is less than 100 (hundred) per cent of the issue size.

Lastly, the SSE is required to maintain the details of the allotment pursuant to the issuance of the Zero Coupon Zero Principal Instruments by NPOs. Any additional norms such as the procedure on agreements with depositories, banks, etc., related matters, duration of public issuance and other ancillary matters related to issue procedure are left to be specified by SSEs.


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