Securities and Exchange Board of India (“SEBI”) has introduced some major amendments to amend SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Regulation, 2015) through the SEBI (Listing Obligations and Disclosure Requirements) (Second Amendment) Regulations, 2023. It has come into effect on the thirtieth day from the 14th June 2023. The amendments represent a significant stride in enhancing corporate governance within listed entities and highlight SEBI’s commitment to encouraging investor trust and establishing a stronger regulatory structure in India’s capital markets. These developments further emphasize the importance of implementing comprehensive compliance management software in India to effectively navigate the evolving regulatory landscape and ensure adherence to the revised regulations.

The major amendments have been discussed below:

Top companies to confirm, deny, or clarify any specific event or information reported in the mainstream media

The definition of “mainstream media” has been added, encompassing both print and electronic mediums. With regards to this insertion, Regulation 30 of the Regulation, 2015 has also been amended where the top 100 listed entities (effective from October 1, 2023) and subsequently the top 250 listed entities (effective from April 1, 2024) are required to confirm, deny, or provide clarification on any specific event or information reported in the mainstream media. It must be done within 24 hours from the time of reporting the event or information.

By enforcing this obligation, it is aimed to maintain transparency and avoid circulation of unnecessary rumors.

Listed entities to fill up Vacancies in Key Managerial Personnel and Compliance Officer Positions within specified time

Regulation 6 provides for the appointment of a Compliance officer and further states his/her responsibilities and the newly inserted Regulation 6(1A) provides that the listed entity must fill vacancy of the Compliance Officer role at the earliest and not later than 3 months from the date of such vacancy.

Regulation 26 focusses on the obligations and responsibilities of the Key Managerial Personnel’s including the Chief Executive Officer (CEO), Managing Director (MD), Whole Time Director (WTD), Manager, and Chief Financial Officer (CFO). Similar to Regulation 6(1A), Regulation 26A requires for the listed entities to fill the vacancy in the KMP’s roles at the earliest and not later than three months from the date of such vacancy.

Additionally, both the regulations highlight a proviso which states that the listed entity shall not fill such vacancy by appointing a person in interim capacity, unless such appointment is made in accordance with the laws applicable in case of a fresh appointment to such office and the obligations under such laws are made applicable to such person. (This is applicable to both the Regulations).

The introduction of these regulations has filled a gap in the regulatory framework, as there was no specific provision regarding timelines for filling vacancies in these key positions. With the introduction of these newly inserted Regulations, SEBI has attempted to strengthen the corporate governance mechanism.

Directors of listed entities to obtain Periodic Shareholder Approval to continue serving the Board

The newly inserted Regulation 17(1D) introduces a key requirement for directors serving the board of a listed entity. It makes a necessary obligation on the directors that they must an approval from shareholders in a general meeting at least once every five years from the date of their appointment or reappointment to continue serving the board.

Exemptions to the Obligation:

While the regulation emphasizes the need for shareholder approval, it also provides certain exemptions which are as follows:

• Whole-Time Director, Managing Director, Manager, Independent Director, or a Director retiring under Section 152(6) of the Companies Act, 2013, if their reappointment is duly complied under the SEBI regulations or the Companies Act, 2013.

• Directors appointed as per the order of a Court or Tribunal, or as nominee directors of the Government on the board of a listed entity (excluding public sector companies), or as nominee directors of a financial sector regulator on the board of a listed entity.

• Directors nominated by financial institutions registered with or regulated by the Reserve Bank of India under a lending arrangement in the normal course of business, or by a Debenture Trustee registered with the Board under a subscription agreement for the debentures issued by the listed entity.

It is a significant step taken by the SEBI to provide for directors’ accountability and transparency. It will involve more participation of the shareholders in the decision-making process.

SEBI’s Revised Material Disclosure Requirements to prescribe the threshold for an event or information to be considered as material

To maintain investors’ confidence, timely disclosures and transparency are the important elements. Recognizing this, the Securities and Exchange Board of India (SEBI) has introduced significant amendments to Regulation 30, which governs the disclosure of material events or information by listed entities. Regulation 30 states that information must be considered material if it meets one of the following criteria:

(a) the omission of an event or information, which is likely to result in discontinuity or alteration of event or information already available publicly or,

(b) the omission of an event or information is likely to result in significant market reaction if the said omission came to light at a later date

However, this Regulation did not mention what specifically constitutes material event or information. But SEBI has now established clear guidelines mentioning the thresholds through the substitution of a clause. It provides that an event or information will be considered as material if its value or impact in terms of value exceeds the least of the following-

(1) two percent of turnover, as per the last audited consolidated financial statements of the listed entity;

(2) two percent of net worth, as per the last audited consolidated financial statements of the listed entity, except in case the arithmetic value of the net worth is negative;

(3) five percent of the average of absolute value of profit or loss after tax, as per the last three audited consolidated financial statements of the listed entity;

In situations where the thresholds are not applicable, the board of directors would have the discretion to determine the materiality of an event or information.

The Second Amendment regulations, 2023 also necessitates the disclosure of any event/information that becomes material according to the thresholds which needs to be disclosed within 30 days from the date of the Second Amendment Regulations coming into effect.

Regulation 30 also states that the listed entity must frame a policy for determination of materiality, based on criteria specified duly approved by its board of directors and must be disclosed on its website. The Second Amendment Regulations additionally states that such policy shall not dilute any requirement specified under the provisions of these regulations. Furthermore, the policy must assist the relevant employees of the listed entity in identifying any potential material event or information and reporting the same to the authorized Key Managerial Personnel for determining the materiality of the said event or information and for making the necessary disclosures to the stock exchange(s).

The listed entity must first disclose to the stock exchange(s) all material events or information at the earliest and not later than the following:

(i) 30 minutes from the closure of the meeting of the board of directors in which the decision pertaining to the event or information has been taken;

(ii) 12 hours from the occurrence of the event or information, in case the event or information is emanating from within the listed entity;

(iii) 24 hours from the occurrence of the event or information, in case the event or information is not emanating from within the listed entity:

It is to be noted that the disclosures with respect to events for which timelines have been specified in Part A of Schedule III must be made within such timelines and in case of any delay sufficient reasons must be made.

The promoters, directors, related parties, KMPs etc. of listed entities to inform to the entity all the binding agreements with third parties where the entity is not a party and thereafter, the entity to disclose such information on its websites

A new provision 30 has also been inserted whereby, all the shareholders, promoters, promoter group entities, related parties, directors, key managerial personnel and employees of a listed entity or of its holding, subsidiary and associate company, who are parties to the agreements specified in clause 5A of para A of part A of schedule III to these regulations are obligated to inform the listed entity about the agreement to which such a listed entity is not a party, within 2 working days of entering into such agreements or signing an agreement to enter into such agreements.

A new clause 5A of para-A of part A of Schedule III of the LODR Regulations has further been notified and the Agreements specified to invoke the Regulation 30A is:

Agreements entered into by the shareholders, promoters, promoter group entities, related parties, directors, key managerial personnel, employees of the listed entity or of its holding, subsidiary or associate company, among themselves or with the listed entity or with a third party, solely or jointly, whose purpose and effect is to impact the management or control of the listed entity or impose any restriction or create any liability.

There have been instances where promoters have entered into binding agreements with third parties having an impact on the management or control of a listed entity, or placing certain restrictions on the listed entity, without disclosing these facts to the entity and its shareholders. This has led to the formation of information asymmetry, where some parties had access to material information while others did not. Thereby, to address this present issue, following amendment has been introduced.

Other Insertions through the amendments are as follows:

1. As per new clause 31B, in case any special right is granted to the shareholders of a listed entity, the approval by the shareholders in a general meeting must be obtained through a special resolution once in every five years starting from the date of grant of such special right.

2. As per new clause 33(j), the listed entity must submit its financial results for the quarter or the financial year immediately succeeding the period for which the financial statements have been disclosed in the offer document for the initial public offer. This submission must adhere to the specified timeline mentioned in either clause (a) or clause (d) of the regulation. Alternatively, the financial results should be submitted within 21 days from the date of listing, whichever is later.

3. As per amendment made in regulation 46, the listed entities shall be required to disclose in their website under the separate section the schedule of analysts or institutional investors meeting at least 2 working days in advance (excluding the date of the intimation and the date of the meet) and presentations made by the listed entity to analysts or institutional investors.

4. Schedule III and V have also undergone amendments that involve the substitution or insertion of certain provisions. These changes aim to update and enhance the existing regulations outlined in these schedules.

5. Provisions of chapter IV which talks about Obligations of the listed entity which has listed its specified securities and non-convertible debt securities is now applicable till March 31, 2024.

6. Business Responsibility and Sustainability Report (BRSR) on environmental, social and governance disclosures, must be submitted in the format as may be specified by the Board.9. Regulation 37 has been amended to include the insertion of Regulation 37A, which deals with the sale, lease, or disposal of an undertaking outside the Scheme of Arrangement. To undertake such transactions, prior approval of shareholders is required. Listed entity is further required to disclose object, rationale and the use of proceeds in the explanatory statement provided to Shareholders. On 20th June, 2023, SEBI has also issued a Master Circular on the Scheme of Arrangement by Listed Entities and provided relaxation to Sub-rule (7) of Rule 19 of the Securities Contracts (Regulation) Rules, 1957, with the aim of safeguarding investor interests.

7. Regulation 15 has also been amended as well where the listed entity is required to submit a certificate to the stock exchange regarding status of payment of interest or dividend or repayment or redemption of principal of non-convertible securities, within one working day of it becoming due, in prescribed format.

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Written by: Sanchita Agarwal

Co-authored by: Amiya Mukherjee

 

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