The Securities and Exchange Board of India (SEBI) is deliberating on amending the framework for granting exemptions for trust transfers, said two people in the know.

In the past few months, the regulator has been insisting on getting the trust deed agreements registered with the sub-registrar’s office in order to avail of an exemption for open offers. This is so that the executed trust deed submitted to SEBI for approval cannot be changed later ante-dated (a date prior to registration).

The new requirement is concerning as it may pose reputational risks to promoter families as the trust deed could now become a lot more accessible, said experts. “As a family I don’t want the world at large to access the trust arrangement that I have. There may be a lot of commentary and personal or embarrassing details included in the trust deed. All these could come under scrutiny once the document becomes widely accessible,” said an official.

It is not uncommon for a family member to get inequitable treatment — the daughter of a family, for instance, was excluded from the trust simply because she had married someone from outside the community, the official said. “If the registration requirement is made mandatory, there could be risks to privacy, given that the sensitive clauses of trust deeds (which are not available in public domain) could be accessed by anyone,” said Binoy Parikh, Executive Director at Katalyst Advisors.

An email sent to SEBI did not get a response.

History

Trusts are typically set up by large, listed promoters who put 50-60 per cent of their holdings in it. These trusts help in succession planning and continuity of ownership.

The Indian Trusts Act, 1882 and the Registration Act, 1908 currently do not require trusts to register their trust deeds, if there are no immovable properties involved.

Substantial acquisition of shares can trigger an open offer. Specific exemptions, however, are granted by SEBI under Regulation 11 of the Takeover Regulations. The majority of the exemptions have been sought in cases where private family trusts have acquired the direct and indirect holdings of the promoters or promoter group of a listed company as part of an arrangement or settlement of the promoter family’s holdings.

In 2017, a SEBI circular had enumerated the conditions that would expedite the processing time of exemption applications filed by the private family trust.

Way forward

Despite reputational risks, families may still consider going ahead with family trusts if there are wider social and commercial considerations in terms of a seamless inter-generational succession of governance and wealth, according to Parikh.

The requirement for quarterly personal affidavits by promoters and third-party certification could be alternative ways to verify the trust deeds without compromising the regulator’s approval process, he said.

To be clear, SEBI does take several undertakings while granting an exemption at present, requiring the trust to report changes in shareholding and names of trustees. Any subsequent modifications require SEBI intimation and implied approval. The trust has to confirm, on an annual basis, that it is in compliance with the exemption order passed by SEBI and get its compliance status certified from an independent auditor.

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