Earlier this month, on July 15, 2022, the Ministry of Finance, had declared ‘zero coupon zero principal instruments’ as ‘securities’ for the purposes of Securities Contracts (Regulation) Act, 1956. Further, the notification provided that ‘zero coupon zero principal instrument’ means an instrument issued by a ‘Not-for-Profit Organisation’ which shall be registered with ‘Social Stock Exchange’ segment of a recognized stock exchange in accordance with the regulations made by the Securities and Exchange Board of India.

Pursuant to the same, the Securities and Exchange Board of India has further amended the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”) on July 25, 2022 vide the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Third Amendment) Regulations, 2022 (“Amendment Regulations”), wherein a specific chapter, i.e. Chapter X-A has been inserted specifically regarding ‘Social Stock Exchange’. 

The provisions of this Chapter X-A are applicable to: (a) a Not-for-Profit Organization seeking to only get registered with a Social Stock Exchange; (b) a Not-for-Profit Organization seeking to get registered and raise funds through a Social Stock Exchange; (c) a For Profit Social Enterprise seeking to be identified as a Social Enterprise under the provisions of this Chapter.

Please find below the newly introduced definitions of the relevant terms: 

a. “For Profit Social Enterprise” means a company or a body corporate operating for profit, which is a Social Enterprise for the purposes of these regulations and does not include a company incorporated under section 8 of the Companies Act, 2013. 

b. “Not for Profit Organization” means a Social Enterprise which is any of the following entities: (i) a charitable trust registered under the Indian Trusts Act, 1882; (ii) a charitable trust registered under the public trust statute of the relevant state; (iii) a charitable society registered under the Societies Registration Act, 1860; (iv) a company incorporated under section 8 of the Companies Act, 2013; (v) any other entity as may be specified by the Board.

c. “Social Enterprise” means either a Not-for-Profit Organization or a For Profit Social Enterprise that meets the eligibility criteria specified in this Chapter. 

d. “Social Stock Exchange” means a separate segment of a recognized stock exchange having nationwide trading terminals permitted to register Not for Profit Organizations and/ or list the securities issued by Not-for-Profit Organizations in accordance with provisions of these regulations.

Please find attached a copy of the Amendment Regulations.

This update has been contributed by Namitha Mathews (Partner) and Anukriti Goswami (Associate)

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