The Securities and Exchange Board of India (“SEBI”) has published a Consultation Paper proposing significant amendments to the regulatory framework governing Secretarial Compliance Reports, Appointment of Auditors, and Related Party Transactions (“RPTs”) for listed entities. The proposed reforms are aimed at enhancing corporate governance, increasing transparency, and improving investor confidence by addressing gaps in the current regulations. As the regulatory landscape becomes more complex, listed companies must proactively strengthen their compliance frameworks to align with evolving expectations. From deeper due diligence in auditor appointments to structured RPT approvals, these reforms demand a more strategic and system-driven approach to compliance management.
Ensuring seamless regulatory adherence is no longer just about annual filings—it requires continuous monitoring, robust internal controls, and timely disclosures. As compliance obligations grow in scale and complexity, leveraging a compliance management solution in India can help listed companies stay ahead of regulatory changes, mitigate governance risks, and enhance transparency.
Here are some of the Key Reforms published in the consultation paper
Transformation of ASCR From General Review to Detailed Verification
Under the existing framework, listed entities are required to submit an Annual Secretarial Compliance Report (“ASCR”) to stock exchanges within 60 days from the end of each financial year. This report primarily serves as a post-facto review of compliance with securities laws. However, SEBI observed that the current approach often lacks specificity and fails to capture nuanced non-compliance. Hence, it is proposed explicit confirmation will be required from Practicing Company Secretaries (“PCS”) regarding the listed entity’s compliance with critical provisions of securities laws. Also, the ASCR will be integrated into the Annual Report to ensure greater visibility for shareholders. Additionally, compliance with secretarial standards, which was previously a best practice, will now be a binding requirement under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”). Further, any change or resignation of a secretarial auditor will also be classified as a deemed material event, necessitating immediate disclosure to the stock exchanges. These measures are intended to transform the ASCR into a comprehensive compliance verification tool.
Elevating Due Diligence and Transparency for Auditor Appointments:
Under the existing rules, the audit committee (or, board of directors) is required to take into consideration the qualifications and experience of the individual or the firm proposed to be considered for appointment as auditor to assess whether such qualifications and experience are commensurate with the size and requirements of the company. But there are multiple recent instances where firms with limited experience were appointed to audit large entities, potentially compromising the reliability of financial reporting.
To address this, SEBI’s proposed framework seeks to introduce more rigorous due diligence in auditor appointments. Audit Committees will be required to evaluate the qualifications and experience of both audit firms and their signing partners to ensure they are commensurate with the complexity and scale of the entity. Statutory auditors must possess valid peer review certificates, and any regulatory actions or pending proceedings involving them must be disclosed. Fee disclosures will be enhanced to cover both audit and non-audit services, along with any material changes in audit fees. Resignations or removals of auditors prior to the end of their tenure will also necessitate detailed public disclosures. These measures collectively aim to strengthen the integrity of financial audits.
Introducing a Dual Threshold for Materiality of RPTs undertaken by subsidiaries of a listed entity
Current RPT approval requirements are primarily based on transaction values relative to a subsidiary’s turnover. This approach has led to situations where a transaction undertaken by the subsidiary of the listed entity exceeds the threshold for material RPTs requiring shareholder approval but does not exceed 10% of the standalone turnover of the subsidiary, thus not requiring audit committee approval.
SEBI proposes introducing monetary thresholds alongside the existing percentage-based criteria. Transactions involving subsidiaries of main board entities exceeding INR 1000 crore, or those involving SME-listed entities exceeding INR 50 crore, will require audit committee approval. For subsidiaries without a financial track record, the threshold will be determined based on net worth certified by a practicing Chartered Accountant. This dual-threshold mechanism is designed to ensure that both large-value transactions and those involving new subsidiaries receive adequate supervision.
Eliminating Ambiguity in RPT Definitions
To remove ambiguity in definition of ‘related party’ applicable to the subsidiaries of listed entities for compliance with the RPT norms under LODR, the consultation paper proposes definition of ‘related party transaction’ under Regulation 2(1)(zc) of LODR has to be read in conjunction with the definition of ‘related party’ under Regulation 2(1)(zb) of LODR. Further, the word “listed” will be inserted in Regulation 23(5) of LODR in reference to holding company in clause (b) to clarify the that the exemption for transactions between holding companies and wholly owned subsidiaries will apply only if the holding company is listed and the subsidiary’s accounts are consolidated with the holding company’s financials.
Shaping the Future of Corporate Governance
Collectively, these proposals signal a decisive move by SEBI towards a more robust compliance management system. The revised ASCR requirements will enhance the quality of compliance reporting, the auditor appointment process will become more transparent and reliable, and provision for RPT approval will be synchronized to prevent potential abuses. The reforms, once implemented, will require the listed companies to approach compliance with increased diligence and transparency, ensuring a more accountable and resilient corporate governance framework.
Written by: Dwaipayan Das
Co-authored by: Amiya Mukherjee
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