SEBI Revises Pledge Creation And Invocation Rules Through Depositories

REGULATORY AND POLICY UPDATES

SEBI modifies framework for creation/ invocation of pledge of securities through depositories.

The Securities and Exchange Board of India ("SEBI") by way of circular dated 05.02.2026 ("Pledge Circular")¹ , has introduced enhanced compliance requirements in the framework for creation and invocation of pledge of securities through the depository system as prescribed under Paragraph 4.13 of the SEBI Master Circular for Depositories dated 03.12.2024 ("Master Circular for Depositories").

The Pledge Circular introduces the following changes to ensure compliance with Sections 176 (Pawnee's right where Pawnor makes Default) and Section 177 (Defaulting pawner's right to redeem) of the Indian Contract Act, 1872 ("Contract Act"):

i. Pledge Request Forms for the depositories shall make provision whereby: (a) the pledgee undertakes to provide reasonable notice to the pledger(s), and comply with Sections 176 and 177 of the Contract Act; and (b) both pledger and pledgee must undertake to abide by the Contract Act, Depositories Act, 1996, SEBI Regulations, circulars, and bye-laws;

ii. The depositories shall maintain a standardized format of Pledge Request Form; and

iii. The depositories shall send intimation/notification to both pledger and pledgee at the time of invocation confirming the invocation and recording of the pledgee as "beneficial owner" in terms of Regulation 79(8) of SEBI (Depositories and Participants) Regulations, 2018 which provides that the pledgee shall invoke the pledge subject to the provisions of the pledge document.

The depositories are required to make necessary amendments to bye-laws and rules, carry out system changes (if required), and disseminate the provisions to participants and on their websites

The provisions of this Pledge Circular shall be implemented by the depositories on or before 06.04.2026

RBI notifies Draft RBI (NBFC – Registration, Exemptions and Framework for Scale Based Regulation) Amendment Directions, 2026.

Reserve Bank of India ("RBI") by way of notification dated 10.02.2026 issued the Draft RBI (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Amendment Directions, 2026 ("NBFC Amendment Directions")² to amend the RBI (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025 dated 28.11.2025 ("NBFC Principal Directions").

The proposed key amendments under the draft NBFC Amendment Directions are as follows:

i. Insertion of the following terms:

(a) 'NBFC not availing public funds and not having any customer interface' shall mean an NBFC registered with RBI as Type I NBFC or otherwise and: (i) Not accepting public funds and not intending to accept public funds in the future; and (ii) Not having customer interface and not intending to have customer interface in the future. The terms 'public funds' and 'customer interface' shall have the meaning as provided under the NBFC Principal Directions.

(b) 'Type I NBFC' shall mean 'NBFC not availing public funds and not having any customer interface' and holding Certificate of Registration ("CoR") as 'Type I NBFC' issued by the RBI.

(c) 'Type II NBFC' means an NBFC which is granted CoR by the RBI as NBFC other than 'Type I NBFC'.

(d) 'Unregistered Type I NBFC' means 'NBFC not availing public funds and not having any customer interface' as defined in these NBFC Amendment Directions and exempt from the provisions of Section 45IA of the RBI Act, 1934 ("RBI Act") which mandates registration of NBFC with the RBI.

ii. Insertion of framework for Registration for 'NBFCs not availing public funds and not having any customer interface':

(a) 'NBFCs not availing public funds and not having any customer interface' having asset size of less than INR 1,000 crore stand exempted from the requirement of registration with the RBI as prescribed under Section 45IA of the RBI Act with effect from 01.04.2026. Existing NBFCs including those holding CoR as 'Type I NBFC' as on 01.04.2026 and fulfilling the exemption criteria may apply for deregistration within 6 months of effectiveness of the NBFC Amendment Directions, i.e. by 30.09.2026.

(b) The application for deregistration shall be made through PRAVAAH on the company's letter head along with the following documents: (i) Original CoR to be submitted physically to RBI. (ii) Audited financial statements for the last three financial years. (iii) Status of public funds and customer interface for the last three financial years. (iv) Statutory Auditor's Certificate confirming absence of public funds and customer interface as on date. (v) Board Resolution confirming that the Company does not currently have public funds or a customer interface and does not intend to access the same in the future; that it shall obtain registration as a Type II NBFC if it proposes to avail public funds and/or have a customer interface, or as a Type I NBFC if its asset size reaches INR 1,000 crore or above; and undertaking to disclose its status as an 'Unregistered Type I NBFC' and the position regarding public funds and customer interface in the Notes to Accounts to its financial statements.

(c) 'NBFCs not availing public funds and not having any customer interface', having asset size of INR 1,000 crore or more shall mandatorily apply for registration as 'Type I NBFC' through PRAVAAH portal along with prescribed documents. RBI shall issue CoR upon satisfaction of registration conditions. Existing such NBFCs not holding CoR as 'Type I NBFC' shall not be eligible for relaxed regulatory requirements available to NBFCs holding such Certificate. If any such NBFC intends to access public funds and/or have customer interface, it shall seek registration as 'Type II NBFC' under section 45IA of the RBI Act.

(d) If an 'Unregistered Type I NBFC' intends to undertake overseas investment in the financial services sector, it shall obtain registration with RBI and comply with provisions of RBI (NonBanking Financial Companies – Undertaking of Financial Services) Directions, 2025 including obtaining prior approval of RBI.

iii. Corresponding revisions have been carried out in the 'Applicability Clauses' of other RBI Directions governing NBFCs, whereby the reference to "NBFC not availing public funds and not having any customer interface" has been substituted with "NBFC holding a CoR as a 'Type I NBFC'

The NBFC Amendment Directions, upon approval, shall come into force from 01.04.2026

GOVERNMENT NOTIFICATIONS

Finance Minister introduces Finance Bill, 2026 under Union Budget, 2026-27

The Union Minister for Finance and Corporate Affairs presented the Finance Bill, 2026 by Bill No. 3 of 2026 ("Union Budget")3 in the Parliament on 01.02.2026.

The key proposals introduced under the Union Budget are as follows:

i. Reduction in Tax Collected at Source ("TCS"): The Union Budget proposes rationalisation of TCS rates under Section 394 of the Income-tax Act, 2025 ("IT Act 2025"), with effect from 01.04.2026, including the following revisions: (a) TCS on overseas tour programme packages is proposed to be reduced to a uniform rate of 2% without any threshold, in place of the existing structure of 5% up to INR 10 Lakhs and 20% on the excess amount; (b) TCS on remittances under the Liberalised Remittance Scheme ("LRS") for education and medical treatment exceeding INR 10 Lakhs is proposed to be reduced from 5% to 2%; (c) TCS on sale of tendu leaves is proposed to be reduced from 5% to 2%; and (d) other categories including scrap, specified minerals, and alcoholic liquor are proposed to be aligned to a uniform rate of 2%.

ii. Investment limit for Persons Resident Outside India ("PROI") under FEMA (Non-debt Instruments) Rules, 2019 ("NDI Rules"): The Union Budget proposes to permit PROI India to invest in equity instruments of listed Indian companies under the Portfolio Investment Scheme ("PIS"), with the individual investment limit proposed to be increased from 5% to 10% of the paid-up capital of the company and the aggregate investment limit for all PROIs in a company proposed to be increased from 10% to 24%. These changes are proposed to be implemented through amendments to NDI Rules and related directions issued by the RBI.

iii. Taxation of buy-back of shares: The Union Budget proposes a change in the taxation of share buybacks by treating the consideration received by shareholders as capital gains instead of taxing the entire amount as income from other sources. For buy-backs undertaken on or after 01.04.2026, the taxable amount shall be the excess of buy-back consideration over the cost of acquisition, chargeable as capital gains under the IT Act 2025. Long-term capital gains are proposed to be taxed at 12.5% and short-term capital gains at 20%. Promoter shareholders are proposed to be subject to higher effective tax rates, being approximately 22% where the promoter is a domestic company and 30% for other promoter categories. Any capital loss arising on account of buy-back shall be available for set-off in accordance with the prescribed provisions.

iv. Tax holiday for foreign companies procuring data centre services from India: The Union Budget proposes an income-tax exemption for foreign companies by amending Schedule IV of the IT Act 2025, in respect of income accruing or deemed to accrue in India solely due to procurement of data centre services from a specified data centre in India. The exemption is proposed to be applicable from tax year 2026-27 up to the tax year ending on 31.03.2047, subject to the following conditions: (a) the foreign company is specifically notified for the purposes of the exemption; (b) the data centre is owned and operated by an Indian company and notified by the Ministry of Electronics and Information Technology ("MeitY") as a specified data centre; (c) the foreign company does not own or operate the data centre infrastructure; and (d) where services are provided to users in India, all sales are routed through an Indian reseller company, failing which the exemption shall not be available.

v. Amendments to Safe Harbour Rules: The Union Budget proposes consolidation of information technology, information technology enabled services, knowledge process outsourcing, and contract research and development services into a single category of "IT services" for safe harbour purposes, with a unified safe harbour margin of approximately 15.5% on costs. The turnover threshold for eligibility is proposed to be increased from INR 300 crores to INR 2,000 crores. The Union Budget also proposes introduction of new safe harbour provisions for Indian entities providing data centre services to foreign associated enterprises at 15% on costs and for bonded warehousing of electronic components at 2% on invoice value, along with a move towards automated and rule-based acceptance of safe harbour positions for multiple years.

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