THE MODEL TENANCY LAW - ROAD TO REGULATED AND BENEFICIAL TENANCIES IN INDIA

 

INTRODUCTION

An announcement was made in Union Budget 2019-2020 by the Finance Minister, Ms. Nirmala Sitharaman proposed few changes to be bought under the housing sector the laws governing the transactions between landlords and tenants for renting of property in India. Almost two years after announcing it, the union cabinet approved the Model Tenancy Act, 2020’[1] (“MTA”) that aims to boost rental housing in the country and reduce litigation, which was first released in the year 2019 by the Ministry of Housing and Urban Affairs ("Ministry") for seeking public comments. The MTA will provide the legal framework for the rental housing including commercial premises across the country. It is expected to give a boost to private sector participation in the rental housing sector thereby creating a lucrative market and addressing the huge housing shortage especially faced by the urban population. States can adopt the Act as either in the form of fresh legislation, since it is a state subject or they can amend their existing rent acts in line up with the MTA.

 At the outset, the precise objective behind the enactment of MTA extracted from the recital reads as “to establish Rent Authority to regulate renting of premises and to protect the interests of landlords and tenants and to provide speedy adjudication mechanism for resolution of disputes and matters connected therewith or incidental thereto”

 EXISTING LAWS ARE LONG DRAWN

The existing state rental laws such as Maharashtra Rent Control Act, 1999 and Delhi Rent Act, 1995 have lengthy legal frameworks tilted heavily in favour of tenants which results in unsettled litigation. Ceiling the rent further deteriorated the quality and quantity of rental house stock resulting in lower rental yields. On the other hand, affording a house is a challenge especially for a low-income household and it becomes difficult to promote rental housing to such households. In addition to the rental housing, the draft law also emphasis on growth of investment in the sector and give a boost to entrepreneurial opportunities and innovative mechanisms of sharing of space. It will be applicable prospectively without affecting the existing tenancies, meaning that owners who have not been able to evict tenants due to the provisions of the previous laws will get no relief unless the state in which they own a property specifically provisions for it. 

[1] http://mohua.gov.in/cms/modeltenancyact.php

 LEGAL PRACTICE ENVISAGED UNDER THE MTA

1. Tenancy Agreement[1]

       - All the new tenancies of the premises are bound to execute a rent agreement in writing. As per the requirement under section 4 of the MTA, the details of the executed rent agreement shall be duly submitted to the concerned Rent Authority in the prescribed form as specified under the MTA, jointly by the landlord and the tenant within 2 months from the execution date of the Agreement.  

     - In the event if both the landlord and the tenant, fails to jointly submit the details with the Rent Authority within 2 months from the execution date of the Agreement, then they can separately inform to the Rent Authority within a period of one month from the date of expiry of the 2 months period specified above.

    - A digital platform will be put in place which may be in the local vernacular language or the   language of the State/Union Territory for submitting tenancy agreement and other documents.   Rent Authority will keep a charge/control/tab on these agreements.

     - The Rent Authority will provide a UIN (Unique Identification Number) to the parties and within   seven working days of the receipt of the information from the parties, the Rent Authority will   upload the tenancy details on the above-said digital platform. 

      - The term ‘premises’ includes residential and commercial premises but excludes industrial premises.[2]

2.    Security Deposit

A cap on the number of the months security deposit (“SD”) has been put in place by the provisions of the MTA. The SD to be paid by the tenant shall not exceed two months rent in case of the residential properties and in the case of non-residential properties the SD shall not exceed more than the six (6) months' rent.[3]

 3.    Restricting the sub-letting rights

The sub-letting or assigning or transferring of premises held by a tenant is allowed subject to entering into a supplementary agreement and informing jointly to the Rent Authority within two months in the prescribed form, from the date of execution of such supplementary agreement.[4]

 4.  Eviction and Recovery of possession of premises by the landlord

During the continuance of tenancy the tenant shall not be evicted from the premises for the defaults unless otherwise agreed to something in writing by both the parties and if nothing agreed in a tenancy the agreement, then the landlord shall approach the Rent Authority for obtaining an order of eviction and recovery by relying on the grounds such as tenant failed to pay agreed rent or arrears for consecutive two months, sub-let without obtaining written consent, misuse the land after receiving cease and desist order from a landlord, failed to vacate let out premises after receiving vacate notice, necessary to carry out changes or repair of let out premises on the direction of competent authority.[5.

However, in case of the death of landlord, the legal heirs shall move the application to Rent Authority, showing a bonafide requirement for seeking the eviction and recovery of possession of premises let out. [6]

5.    Rent Authority, their powers, and appeals [7]

The MTA has introduced the mechanism of addressing the disputes and grievances through a specific Rent Authority (“RA”) to providing an expeditious conclusion of such disputes. The district collector or district magistrate is vested with the power to appoint jurisdictional RA an officer not below the rank of deputy collector in consultation with respective state governments. The MTA has provided more teeth to the RA by vesting the powers of Rent Court relating to revision of rent, determination of revised rent in case of dispute, the deposit of a rent with rent authority, repair and maintenance of the property, duties of a property manager and consequences of violation of duties and withholding essential service or supply.

 6.    Dispute Resolution Mechanism- Rent Courts and Rent Tribunals[8]

The MTA paved the way for establishing the jurisdictional Rent Courts (“RC”) and Rent Tribunals (“RT”) for achieving the speedy redressal of disputes and have powers to regulate their own procedure. The RC / RT shall decide the dispute within a period of sixty (60) days. The jurisdiction of the RC & RT is limited to the tenancy agreement and does not extend to disputes on title and ownership of the premises in dispute.

The district collector or district magistrate shall, with the previous approval of the State Government/Union territory administration, appoint an additional collector or additional district magistrate or an officer of equivalent rank, to be the rent court for the purposes of the MTA, within his jurisdiction. The State Government/Union territory administration in consultation with the jurisdictional High Court, may by notification, appoint a district Judge or additional district Judge as rent tribunal in each district.

Conclusion

Upon successful implementation of the MTA by the respective state governments across the nation, it will lead to a massive relief to the real estate sector and eventually stabilise the rental and housing market in India. The restriction by the existing rental laws on the growth of rental housing and discourage owners from renting out their vacant houses due to fear of repossession, will come to an end now and transparency and accountability in the existing system of renting of premises will come into effect. Furthermore, as the land is the State’s subject, therefore the State would be free to adopt the law, also, States and Union territories can adopt the MTA by enacting fresh legislation or they can amend their existing rental laws suitably. Besides this, huge investment would be required to constitute three-tier grievance redressal system as provided under the MTA.

Download the complete Model Tenancy Act, 2020 at: [1] http://mohua.gov.in/cms/modeltenancyact.php

This Article has been Compiled by Himanshu Mohinani (Associate) and edited by Deepika Sharma (Senior Associate) You can direct your queries or comments to the author at himanshu@factumlegal.com or deepika@facumlegal.com

Disclaimer:

The contents of this article should not be construed as a legal opinion. This article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. We expressly disclaim any financial or other responsibility arising due to any action taken by any person on the basis of this article.

[1] Section 4 of The Model Tenancy Act, 2020

[2] Section 2(d) of The Model Tenancy Act, 2020

[3] Section 11 of The Model Tenancy Act, 2020

[4] Section 7 of The Model Tenancy Act, 2020

[5] Section 21 of The Model Tenancy Act, 2020

[6] Section 22 of The Model Tenancy Act, 2020

[7] Chapter VI of The Model Tenancy Act, 2020

[8] Chapter VII of The Model Tenancy Act, 2020

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Key Takeaways on Buyback of Shares by Companies

INTRODUCTION 

    
The Buyback refers to the process by which Company purchases its own shares or securities from its shareholders at a price usually higher than the market price (where shares refer to both Equity and Preference shares and specified securities refer to ESOP and other securities specified by CG from time to time). It is also known as financial restructuring which involves re-arrangement of the financial structure of the Company to make the company’s finance more balanced, buyback is a process of making, and the overcapitalized company a balanced capitalized company.
Though it amounts to a reduction of capital but the provisions of reduction of capital are not applicable on buyback as Section 66(6) of Companies Act 2013 clearly states that nothing in this section shall apply to buyback of its own securities by a company under section 68.

 

      However, one should bear in mind that the Company cannot buy back its debentures as it is not covered under the definition of shares or other specified securities

    Also, Buy-back is not regarded as transfer of shares as the shares bought back by the Company is eventually destroyed and the rights attached to such shares are extinguished. Therefore, there is no stamp duty payable in case of buyback as the stamp duty is payable only in case of transfers.

 

Given below are the various needs of Buy Back:-

To increase the promoter’s shareholding

To increase the Earning per share as the shares outstanding in the market reduces.

To Counter hostile takeover

To return the surplus cash not required by a company to its shareholders

Restructuring of debt-equity ratio

This serves as an exit opportunity to the shareholders of the Company

 

Legal Framework for Buyback

·    Buyback of unlisted company-Section 68 to 70 and Rule 17 of Companies (share capital and debenture rules) 2014;

·   Buyback of listed Company -Provision of Companies Act and various SEBI regulation such as SEBI (Prohibition of Insider trading) Regulation 20015, SEBI (Listing obligation and disclosure requirements) Regulation, 2015 and SEBI(Buyback of securities) regulation 2018

 

In Re SMR universal Softech limited it was seen that the company not being eligible for buyback as there was no authority in AOA of the Company to buy back its shares and the shares proposed to be brought back were not fully paid up issued a public announcement for Buy and was withdrawn simultaneously which resulted in fraud on shareholders, The ruling of SAT are hereunder

 I can therefore be inferred that the motive behind the above advertisement was to deceive the investors by way of disseminating false information. The process of announcing buy-back of shares and its subsequent withdrawal must have resulted in a pecuniary loss to the investors who were influenced to purchase shares on the basis of the advertisement. Hence SMR had committed fraud on shareholders by first issuing misleading advertisement when they were not eligible/ required to make a commitment of buy-back as also their failure to take any conclusive action thereon.

Therefore, taking into consideration all the material facts and circumstances of the case. I hereby restrain the Company and its directors from buying, selling and dealing, or accessing the securities market in any manner for a period of two years.

 

Buy- Back of listed Company

 

Different methods of Buyback

Particulars	Tender offer	Stock exchange	Book Building
Reservation for small shareholder	Yes	No	No
Letter of offer	Yes	No	No
Amount to be deposited in Escrow Account	For 1st 100CR 25%  Beyond 100CR 10%	25% of total Consideration	For 1st 100CR 25% Beyond 100CR 10%
Margin money	1% of total consideration	2.5% of the total consideration	1% of the total consideration
Promoter participation	Yes	No	No
Tendering period	Mas 10 days	Max 6 months	Minimum 15 days Maximum 30 days
Buyback through order matching mechanism. *	N. A	Yes

 

 

 

In case of buyback through the stock, exchange method shares must be buyback through order matching mechanism except for ‘all or none” order matching system where order matching the mechanism is simply the electronic system that matches the buy and sell orders and ‘all or none” order matching system impose a condition that only full order should be matched if the full order is not matched it will stay in books till matched or canceled. 

 

Can a promoter be allowed to decrease its holding in Company?

In a case Re, Punjab Communication, petitioner submitted that the promoter shall not be allowed to participate in the buyback offer as the sole motive of the promoter is to decrease its holding in the Company However SAT held that the promoter can decrease its shareholding in the Company provided that the aggregate shareholding of the public do not fall below the mandatory limit of 25% Of the paid-up capital and the promoter complies with the disclosure requirements.

The ruling of SAT is as hereunder: -

What is relevant here is the question: Whether the promoters can also participate in the company's buy-back offer. The disclosure requirements in this regard are found to have been complied with. The Letter of Offer clearly states that the "promoters intend to surrender equity shares under the buyback offer". There is also a declaration that "The promoters have not traded in the equity shares of the company during a period of 12 months preceding the date of the Board resolution for approving the Buy-Back and during the period of 6 months prior to the Public Announcement for Buy-back". It has also stated that the aggregate shareholding of the promoter on the date of the Public Announcement of the Buyback offer was. 70.22% of the paid-up capital of the company. The Letter of Offer also contains an averment that the non-promoter shareholding will be maintained at 26.48% of the paid-up capital of the company. It is seen from the particulars made available by the PunCom that post-buy back, non-promoter shareholding in the PunCom would be 28.74%. So long as the promoters' participation in the PunCom's buy-back offer is in accordance with the extant law and regulations there is no justifiable reason to disallow the same at this stage.

 

However, presently there are still some ambiguities prevailing in the market in respect of buyback, such as unclear timeline in case of opening of Escrow Account, Regulation 11 and Regulation 21 of Buy Back Regulation which talks about extinguishment of shares contradicts each other which in turn leads to confusion in respect of reporting of extinguishment of shares as a result of which different companies are following different timeline, but one should ensure that they comply with good corporate governance and all the disclosures shall be made as soon as possible.

 

This Article has been compiled by Deepika Sharma (Senior Associate). You can direct your queries or comments to the author at deepika@factumlegal.com)

 

      Disclaimer:

The contents of this article should not be construed as a legal opinion. This article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. We expressly disclaim any financial or other responsibility arising due to any action taken by any person on the basis of this article. 

 

 

Substantial amendments vide SEBI(LODR) (Second Amendment) Regulation, 2021 Effective from 6th May, 2021

    

Insertion of Definition
Working days‖ means working days of the stock exchange where the securities of the entity are listed.
Applicability of Regulation The provisions of these regulations which become applicable to listed entities on the basis of market capitalisation criteria shall continue to apply to such entities even if they fall below such thresholds
Regulation	Before Amendment	After Amendment	Remarks
7 Share Transfer Agent	The listed entity shall submit a compliance certificate to the exchange within one month of end of each half of the financial year.	The listed entity shall submit a compliance certificate to the exchange within thirty days from end of the financial year.	Now the half yearly compliance certificate is to be submitted once in a financial year.
21 Risk Management Committee	(2) The majority of members of Committee shall consist of members of the board of directors.     (3A) Committee shall meet at least once in a year.                                                     (5) The provisions of this regulation shall be applicable  to  top 500 listed entities determined on the basis of market capitalisation, as at the end of the immediate previous financial year.	(2) The Committee shall have minimum 3 members with majority of them being members of the board of directors including at least one independent director. (3A) Committee shall meet at least Twice in a year. Insertion of new sub-regulation (3B) The quorum for a meeting of the Committee shall be either two members or one third of the members of the committee, whichever is higher, including at least one member of the board of directors in attendance. (3C) The meetings of the committee shall be conducted in such a manner that on a continuous basis not more than one hundred and eighty days shall elapse between any two consecutive meetings. Provided that the role and responsibilities of the Risk Management Committee shall mandatorily include the performance of functions specified in Part D of Schedule II   (5) The provisions  of  this  regulation  shall  be  applicable  to  top 1000 listed entities determined on the basis of market capitalisation, as at the end of the immediate previous financial year   (6) The Risk Management Committee shall have powers to seek information from any employee, obtain outside legal or other professional advice and secure attendance of outsiders with relevant expertise, if it considers necessary.	Composition of the committee shall be at least three directors with at least one independent director     A committee shall hold minimum two meeting   Quorum of meeting was not defined earlier however as per amendment Quorum of the committee shall be 2 or 1/3rds of total members of RMC, whichever is higher Including at least 1 member of Board As per latest amendment two meeting are required to be conducted in a financial year the gap between two consecutive meetings shall Not be more than 180 days As provided under Part D of Schedule II, that inter alia includes: a)       Formulating of risk management policy; b)      Oversee implementation of the same; c)       Monitor and evaluate risks basis appropriate methodology, processes and systems. d)      Appointment, removal and terms of remuneration of CRO. Top 1000 listed companies need to constitute Risk Management Committee   The power of RMC include seeking of information from employee, obtain outside legal or other professional advice and secure attendance of outsiders with relevant expertise,
24A Secretarial audit and Secretarial Compliance Report	No time limit was prescribed before amendment	Every listed entity shall submit a secretarial compliance report in such form as specified, to stock exchanges, within sixty days from end of each financial year	Earlier in no time limit was prescribed in Regulation 24A however a circular was issued On Feb 8, 2019 prescribing the time line. The given amendment is in alignment with the said circular.
27 Corporate Governance Requirements	The listed entity shall submit a quarterly compliance report on corporate governance in the format as specified by the Board from time to time to the recognized stock exchange(s) within fifteen days from close of the quarter	The listed entity shall submit a quarterly compliance report on corporate governance in the format as specified by the Board from time to time to the recognized stock exchange(s) within twenty-one days from the end of each quarter	Corporate grievance Report to be submitted within 21 days from the end of quarter in place of 15 days from the end of quarte
31A Re-classification of status of a promoter/ person belonging to promoter group to public	(ii) the board of directors of the listed entity shall analyze the request and place the same before the shareholders in a general meeting for approval along with the views of the board of directors on the request: Provided that there shall be a time gap of at least three months but not exceeding six months between the date of board meeting and the shareholder’s meeting considering the request of the promoter(s) seeking re-classification.   (iii)the request of the promoter(s) seeking re-classification shall be approved in the general meeting by an ordinary resolution in which the promoter(s) seeking re-classification and persons related to the promoter(s) seeking re-classification shall not vote to approve such re-classification request	(ii) the board of directors of the listed entity has analyzed such request in the immediately next board meeting or within three months from the date of receipt of the request from its promoter(s), whichever is earlier and has placed the same before the shareholders in a general meeting for approval along with the views of the board of directors on the request: Provided that there shall be a time gap of at least one month but not exceeding three months between the dates of the board meeting and the shareholders ‘meeting considering the request of the promoter(s) seeking reclassification   (iii) the request of the promoter(s) seeking reclassification has been approved in the general meeting by an ordinary resolution in which the promoter(s) seeking reclassification and the persons related to him/her/it have not voted to approve such reclassification request: Provided that the provisions of this sub-clause shall not apply in cases: (a) where the promoter(s) seeking reclassification and persons related to the promoter(s) seeking reclassification, together, do not hold more than one percent of the total voting rights in the listed entity; (b) where reclassification is pursuant to a divorce.	The request of reclassification now to be considered by the Board immediately in the next board meeting or within 3 months from the receipt of request of reclassification by promoter whichever is earlier         The time gap between the Board meeting and the shareholder meeting is revised now the time gap shall be minimum one month and maximum 3 months
Regulation 32 Statement of deviations and variations	Where the listed entity has appointed a monitoring agency to monitor utilization of proceeds of a public or rights issue, the listed entity shall submit to the stock exchange(s) any comments or report received from the monitoring agency.	Where the listed entity has appointed a monitoring agency to monitor utilization of proceeds of a public or rights issue, the listed entity shall submit to the stock exchange(s) any comments or report received from the monitoring agency within forty-five days from the end of each quarter	Comments of monitoring agency in respect of deviation and variation with regard to utilization of proceeds to be submitted quarterly within 45 days of end of quarter
Regulation 34 Annual Report	the top one thousand listed   entities   based   on   market   capitalization business responsibility report describing the initiatives taken by them from an environmental, social and governance perspective, in the format as specified by the Board from time to time:	The requirement of submitting a business responsibility report shall be discontinued after the financial year 2021–22 and thereafter, with effect from the financial year 2022–23, the top one thousand listed entities based on market capitalization shall submit a business responsibility and sustainability report in the format as specified by the Board from time to time Provided further that even during the financial year 2021–22, the top one thousand listed entities may voluntarily submit a business responsibility and sustainability report in place of the mandatory business responsibility report	Submission of business responsibility statement to be discontinued after the F/Y 2021-22 and from F/Y 2022-23 the Companies shall submit business responsibility and sustainability report same can be submitted by Companies on voluntary basis.
Regulation 40 Transfer Or transmission Or transposition of securities.	The listed entity shall ensure that the share transfer agent and/or the in-house share transfer facility, as the case may be, produces a certificate from  a  practicing company secretary within one month of the end of each half of the financial year, certifying that all certificates have  been issued  within  thirty days of the date of  lodgement  for  transfer,  sub-division, consolidation, renewal, exchange or endorsement of calls/allotment monies	The listed entity shall ensure that the share transfer agent and/or the in-house share transfer facility, as the case may be,  produces  a certificate  from  a  practicing company secretary within thirty days from end of the financial year, certifying that all certificates have  been issued  within  thirty days of the  date  of  lodgement  for  transfer,  sub-division, consolidation, renewal, exchange or endorsement of calls/allotment monies	Certificate from practicing company secretary that all the certificate in respect of issue of lodgment, transfer sub-division, consolidation renewal, exchange or endorsement of calls/allotment monies has been issued within 30 days to be obtained once in a Financial year in place of half yearly certificate
Regulation 43A Dividend Distribution Policy	The top 500 listed entities shall formulate a dividend distribution policy which shall be disclosed in their annual reports and on their websites	The top 1000 listed entities shall formulate a dividend distribution policy which shall be disclosed on the website of the listed entity and a web-link shall also be provided in their annual reports	Now top 1000 listed Companies to formulate dividend distribution policy which shall be displayed on website of Company the link of which shall be provided in annual report as well
Regulation 44 Meeting of Shareholder and voting	The listed entity shall submit to the stock exchange, within 48 hours of conclusion of its General Meeting, details regarding the voting results in the format specified by the Board.	The listed entity shall submit to the stock exchange, within 2 working days of conclusion of its General Meeting, details regarding the voting results in the format specified by the Board.	Now voting result to be submitted to stock exchange within 2 working days in place of 48 hours of conclusion of meeting
Regulation 45 Change in name of listed Entity	On receipt of confirmation regarding name availability from ROC, before filing the request for change of name with the Registrar of Companies in terms of provisions laid down in Companies Act, 2013 and rules made thereunder, the listed entity shall seek approval from Stock Exchange by submitting a certificate from chartered accountant stating compliance with conditions.	Upon compliance with the conditions for change of name laid down in Companies Act, 2013 and rules made thereunder, the listed entity, in the explanatory statement to the notice seeking shareholders’ approval for change in name, shall include a certificate from a practicing-chartered accountant stating compliance with conditions	Now, no requirement of SE approval for change in name is required and the certificate by the Practicing Chartered accountant to be attached with explanatory statement of shareholder meeting notice.

 

Conclusion :- The prime objective of introducing SEBI(LODR) (Second Amendment) Regulation, 2021 is to align the given regulation with Companies Act 2013 and the SEBI(ICDR) regulation 2018, whereby the given regulations have focused on gender neutrality by adding ‘her’ along with ’his’ as the main motive of the SEBI is to protect the interest of its investors, therefore with these amendments the SEBI, has focused in bringing more Companies under the Compliance of the Regulation by replacing the applicability of provision on top 1000 listed Companies in place of Top 500 listed Companies. Further to this, we have tried to capture major amendments in erstwhile regulations by SEBI(LODR) (Second Amendment) Regulation, 2021, whereas the other amendments in schedules, website disclosures etc. shall be covered in our upcoming article for our readers.

Here is the link of proposed amendment: 

https://www.sebi.gov.in/legal/regulations/may-2021/securities-and-exchange-board-of-india-listing-obligations-and-disclosure-requirements-second-amendment-regulations-2021_50100.html

This Article has been Compiled by Deepika Sharma (Senior Associate), and  Suruchi Garg (CS Trainee) You can direct your queries or comments to the author at deepika@factumlegal.com)

 Disclaimer:

The contents of this article should not be construed as legal opinion. This article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. We expressly disclaim any financial or other responsibility arising due to any action taken by any person on the basis of this article.