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Special National Investment Fund

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Special National Investment Fund is a fund maintained outside the Consolidated Fund of India to transfer the shares of certain listedloss making central public sector enterprises (CPSEs) which were found to be non-compliant with the Rule that minimum 10% of the shares issued be held by the public (which means non-promoter entities) to be eligible to remain listed on stock exchanges of the country.

In structure, it mimics the original concept of National Investment Fund(NIF) created for receiving the disinvestment proceeds of central public sector enterprises. The difference stems from the fact that only shares are transferred here and not receipts from the sale of shares of CPSEs. Further special NIF is aimed only at loss making CPSEs.

History As per Rule 19 (2) (b) read with Rule 19A of the Securities Contracts (Regulation) Rules, 1957 (SCRR), the listed companies are required to achieve and maintain a minimum public (non-promoter) shareholding out of the total number of issued shares. This requirement is 25% for listed companies in private sector (Non-PSUs) and 10% for listed Public Sector Undertakings (PSUs) under Central / state government.

The punitive action proposed by the securities market regulator, SEBI, in the case of non-compliant private companies included

  1. Direct freezing of voting rights and corporate benefits like dividend, rights, bonus shares etc. with respect to the excess proportionate promoter/ promoters group;
  2. Prohibiting the promoters/promoter group and directors of these non-compliant companies from buying, selling or otherwise dealing in the securities of their respective companies, either directly or indirectly, in any manner whatsoever, except for the purpose of complying with minimum public shareholding requirement till such time these companies comply with the minimum public shareholding requirement;
  3. Restraining the shareholders forming part of the promoter/promoter group in the non-compliant companies from holding any new position as a director in any listed company, till such time these companies comply with the minimum public shareholding requirement;
  4. Restraining the directors of non-compliant companies from holding any new position as a director in any listed company, till such time these companies comply with the minimum public shareholding requirement.

In this case, the non-compliant public sector companies were found to be not financially soundand it would have been difficult to sell shares of these Companies in the market. Hence it was found difficult to meet the minimum public shareholding by following SEBI approved methods. However, Government was keen to comply with the minimum public shareholding requirement in all Government Companies.

In view of the above, Cabinet Committee of Economic Affairs (CCEA) on 2nd August 2013 approved the creation of a Special National Investment Fund to make the following non-compliant listed Central Public Sector Enterprises (CPSEs) complaint with the minimum public shareholding of 10%:

  1. Andrew Yule & Company Limited
  2. Fertilizers and Chemicals (Travancore) Ltd.
  3. Hindustan Photo Films Manufacturing Company Ltd.
  4. HMT Limited
  5. ITI Ltd
  6. Scooters India Ltd

These companies were either referred to Board for Industrial and Financial Reconstruction (BIFR) or Board for Reconstruction of public sector enterprises (BRPSE).

Salient Features of the Fund

Unlike the National Investment Fund (NIF), which is now a part of the “public accounts” of Government of India, the special NIF would be kept outside the consolidated fund of India, as was the case originally for NIF.

The number of shares that is required to make the non-compliant companies compliant with the minimum public shareholding limit will be transferred to the Special National Investment Fund out of Government of India shareholding on irrevocable basis without any consideration.

The Special NIF would be managed by independent professional fund managers as was originally the case with NIF.

The shares so transferred to the fund will be sold in the capital market gradually over a period of 5 years by the fund managers. The modalities of the sale and price will be decided by the existing Empowered Group of Ministers (EGoM) on the subject. The funds realized from the sale of shares would be used for social sector schemes of the Government.

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