Regulatory updates

SEBI has introduced following amendments in this regard:

• Board permanency at listed entities (Regulation 17(1D) of the LODR Regulations) A permanent seat on the board of directors of a company is generally secured through two ways viz., (i) by having a clause inserted in the Articles of Association (AoA) of a company enabling appointment of a permanent director, and/or (ii) by getting appointed on the board as a director not liable to ‘retirement by rotation’ and without any defined tenure. SEBI recently noticed that based on the regulations of the Companies Act, 2013, not all directors serving on the board of a listed company are subject to ‘retirement by rotation’ or subject to shareholders’ approval after his/her initial appointment⁵For example, few promoters of listed entities have been enjoying permanency on the board of listed entities. In the interest of good corporate governance, SEBI has inserted Regulation 17(1D) in the LODR Regulations to address the issue of board permanency at listed entities (entities), i.e., only those directors whose appointment/reappointment is ratified by the shareholders could continue on the board of directors (the board) of a company. Key provisions include:

• Shareholders’ approval: The amendment provides that w.e.f. 1 April 2024, the continuation of a director serving on the board of an entity must be subject to the approval by shareholders in a general meeting at least once in every five years from the date of their appointment or reappointment, as the case may be.
• Guidance w.r.t. existing directors: The amendments state that the continuation of a director serving on the board of an entity as on 31 March 2024, without seeking any approval of the shareholders for the last five years or more would be subject to the approval of shareholders in the first general meeting to be held after 31 March 2024
• Scope of the amendment: The aforementioned requirements would NOT apply to:

• Whole Time Directors (WTDs)
• Managing Director (MD)
• Manager
• Independent Director (ID)
• Any director retiring as per Section 152(6) of the Act, provided that the approval of the shareholders has been otherwise provided for by the provisions of these Regulations or the Act
• A director appointed pursuant to the order of a Court or Tribunal
• Nominee director of the Government, other than a public sector company
• Nominee director of a financial sector regulator
• Director nominated by a financial institution registered with or regulated by the Reserve Bank of India (RBI) under a lending arrangement in its normal course of business, or by a debenture trustee registered with SEBI under a subscription agreement for the debentures issued by the entity.

Effective date: The amendment came into force w.e.f. the 30^th day from the date of its publication in the Official Gazette, i.e., 15 July 2023.

• Special rights to shareholders (Regulation 31B of the LODR Regulations): Currently, once an entity gets listed, it seeks onetime shareholders’ approval for retaining any special rights conferred on any of the shareholders as per the AoA of the entity. SEBI, through the amendment has inserted Regulation 31B in the LODR Regulations. It provides that any special right granted to the shareholders of an entity must be subject to the approval by shareholders in a general meeting by way of a Special Resolution (SR) once in every five years⁶ This requirement would not apply to the special rights made available by an entity to a financial institution registered with or regulated by the RBI under a lending arrangement in the normal course of business, or to a debenture trustee registered with SEBI under a subscription agreement for the debentures issued by the entity, if such financial institution or the debenture trustee becomes a shareholder of the entity as a consequence of such arrangement/agreement , beginning from the date of grant of such special right.

Effective date: The amendment came into force w.e.f. the 30^th day from the date of its publication in the Official Gazette, i.e., 15 July 2023.

• Sale, lease or disposal of an undertaking outside a scheme of arrangement (Regulation 37A of the LODR Regulations): Section 180(1)(a)⁷Section 180: Restrictions on powers of the Board of the Act prescribes the requirement of seeking approval by way of a SR on matters related to sale, lease or disposal of assets of a company. Such sale, lease or disposal takes place either through a scheme of arrangement or a business transfer agreement. SEBI has prescribed detail guidelines for transfer of the whole or substantially the whole of the undertaking of the listed entity, by way of a scheme of arrangement in a manner that would protect the interests of the minority shareholders. However, there is no explicit framework for protecting the interest of minority shareholders for sale, disposal or lease of the entire undertaking outside a scheme of arrangement. This in effect results in sale of the business undertaking without taking such shareholders into confidence Accordingly, SEBI has now inserted Regulation 37A in the LODR Regulations, providing guidance w.r.t. sale, lease or disposal of an undertaking outside the scheme of arrangement⁸ The provisions of Regulation 37A would not apply in cases where the sale, lease or disposal is by virtue of a covenant covered under an agreement with a financial institution regulated by or registered with the RBI or with a debenture trustee registered with SEBI, in this regard. Further, the provisions would not be applicable to such sale, lease or disposal of undertakings, where the notice has already been dispatched to the shareholders of the entity . It states that where an entity carries out sale, lease or disposal of the whole or substantially the whole of one or more undertakings, it should:

• Obtain prior approval of the shareholders by way of a SR, and
• Disclose the object of and commercial rationale for carrying out such sale, lease or disposal and the use of proceeds arising therefrom, in the statement annexed to the notice to be sent to the shareholders.

The amendment has further clarified that such sale, lease or disposal of undertaking(s) should be acted upon, only if votes cast by the public shareholders in favour of the resolution exceed the votes cast against the resolution (Additional approval criteria introduced). Other key points specified by the amendment include:

• Sale, lease or disposal of undertaking to a wholly owned subsidiary: The amendment provides that the aforementioned additional approval requirement would not apply to transactions involving sale, lease or disposal of the whole or substantially the whole of the undertaking by an entity to its Wholly Owned Subsidiary (WOS), whose accounts are consolidated with the entity. However, in cases where the WOS sells, leases or disposes off the whole or substantially the whole of the undertaking received, whether in whole or in part, to any other entity, it would be required to comply with the requirement specified above before convening such transaction.
• Dilution of shareholding below 100 per cent in the WOS: The amendment clarifies that an entity must comply with the above requirement, before diluting its shareholding below 100 per cent in its WOS to which the whole or substantially the whole of the undertaking of such entity had been transferred.

Effective date: The amendment came into force from the date of its publication in the Official Gazette, i.e., 14 June 2023.

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Following are the key provisions introduced in this regard:

• Submission of financial results by newly listed entities (Regulation 33 of the LODR Regulations)

As per the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations), issuers must provide audited financial results in their offer documents, which should not be more than six months old prior to the issue opening date.

Post listing, companies are required to comply with Regulation 33 of the LODR Regulations for financial reporting. As per Regulation 33 of the LODR Regulations, entities are required to submit financial results in the manner prescribed below:

• Quarterly financial results within 45 days from the end of each quarter, other than the last quarter
• Quarterly financial results for the last quarter and the annual financial results within 60 days from the end of the F.Y.

However, there may be instances wherein the entities get listed closer to the timeline prescribed for submission of financial results, thus providing them a very short period of time post listing for disclosure of their financial results

On the other hand, there could be a case where issuers list their shares immediately after 45 days from the end of a quarter. In such a case, the issuer would not be required to disclose the financial results for such a quarter in the offer document or post listing. This would result in a large time gap between the last financial results that were available to investors in the offer document and the financial results that are disclosed to the shareholders or to the public at large under Regulation 33 of the LODR Regulations by such newly listed entities. This would also lead to information asymmetry⁹This is because the company and its officials would have access to this information but the investors would not..

Considering the sensitivity of this information, SEBI has now issued an amendment, which requires a newly listed entity to disclose its first financial results post listing, for the period (quarter or F.Y.) immediately succeeding to the periods for which the financial results were disclosed in the offer document, within 21 days from the date of listing or as per the timelines prescribed under the LODR Regulations, whichever is later.

Effective date: The provisions are applicable for the issuers whose public issues opened on or after these regulations came into effect, i.e., 15 July 2023.

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As per Regulation 30 of the LODR Regulations, an entity which has issued specified securities is required to provide disclosures of events or information, which in the opinion of the board of directors of the entity, is material. The disclosures are required to be provided in accordance with Part A¹⁰The events specified in Para A of Part A of the Schedule (Para A) are deemed to be material events which are required to be disclosed by the entities. On the other hand, the events enumerated in Para B of Part A of Schedule III (Para B) are required to be disclosed based on the materiality policy of the entity. of Schedule III of the LODR Regulations. SEBI has issued certain amendments in this regard. These include:

• Disclosure requirements for certain types of agreements binding entities: As per the existing provisions, any agreement entered into by an entity, which is not in the ordinary course of business, must be disclosed under Clause 5 of Para A of Part A of Schedule III of the LODR Regulations (Para A). SEBI has now issued an amendment in this respect

The amendment has inserted a new Clause 5A to Para A. Through the amendment, it is now mandatory for an entity to disclose to the stock exchange(s) , the agreements entered into by its shareholders, promoters, promoter group entities, related parties, directors, KMP, its employees or of its holding, subsidiary or associate company, among themselves or with the entity or with a third party, solely or jointly, which, either directly or indirectly¹¹The term 'directly or indirectly' includes agreements creating obligation on the parties to such agreements to ensure that the entity shall or shall not act in a particular manner. or potentially or whose purpose and effect is to:

• Impact the management or control of the entity
• Impose any restriction on the entity, or
• Create a liability on the entity

However, the amendment has clarified that no such agreements, which have been entered into by an entity in the normal course of business would be required to be disclosed, unless they impact the management or control or are required to be disclosed in terms of any other provisions of the LODR Regulations.

The parties to the agreements must inform the entity about such agreements to which the entity is not a party, within two working days of entering into or signing such agreements. The entity should disclose the number of such existing agreements, if any, along with their salient features, including the link to the webpage where the complete details of such agreements are available, in the annual report for the F.Y. 2022-23 or F.Y. 2023-24.

• Materiality threshold for disclosure: As the events stipulated in Para B are required to be disclosed on the basis of the materiality policy determined as per Regulation 30(4)(i) of the LODR Regulations, the amendment has introduced a quantitative threshold for determination of materiality for disclosure of events or information. Accordingly, the following criteria should be considered for determining the materiality of events/information:

• The omission of an event or information, which is likely to result in discontinuity or alteration of event or information already available publicly, or
• 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,
• The omission of an event or information, whose value or the expected impact in terms of value, exceeds the lower of the following:
  • Two per cent of turnover, as per the last audited consolidated financial statements of the entity
  • Two per cent of net worth, as per the last audited consolidated financial statements of the entity, except in case the arithmetic value of the net worth is negative
  • Five per cent of the average of absolute value of profit or loss after tax, as per the last three audited consolidated financial statements of the entity.
• In case where the criteria specified in sub-clauses (a), (b) and (c) are not applicable, an event/information may be treated as being material, if in the opinion of the board of the entity, the event/information is considered material. (Emphasis added to highlight the change)

The amendment has further stated that any continuing event or information which becomes material pursuant to notification of these amendments should be disclosed by the entity by 13 August 2023.

• Determination of materiality policy: With respect to determination of materiality policy, the amendment has inserted a proviso to Regulation 30(4)(ii), thereby requiring the entities to ensure that:

• Materiality policy does not dilute any requirement specified under the provisions of the LODR Regulations, and
• Materiality policy should assist the relevant employees in identifying any potential material event or information and reporting the same to the authorised KMP for determining the materiality of the said event or information and for making the necessary disclosures to the stock exchange(s).

• Timeline for disclosure of events: The amendment has revised the timelines for disclosure of material events or information under Regulation 30(6) to the stock exchange(s). As per the amendment, the disclosure should be made as soon as reasonably possible and, in any case, not later than:

• Information resulting from an outcome of a meeting of the board: Within 30 minutes from the closure of the meeting in which the decision has been taken
• Event or information emanating from within the entity: Within 12 hours (earlier 24 hours) from the occurrence of the event or information
• Event or information not emanating from within the entity: Within 24 hours from the occurrence of the event or information.

Further, disclosure of events for which timelines that have already been specified in Part A of Schedule III, should be made within those timelines. Further, if the disclosure is made after the above-specified timelines, then the entity should also provide the explanation for such delay in disclosure.

• Verification of market rumors: As per the provisions of Regulation 30(11), an entity may on its own initiative, confirm or deny any reported event or information to stock exchange(s).

The amendment introduced by SEBI now, additionally requires following entities to confirm, deny or clarify any reported event or information in the mainstream media¹² As per the amendment, 'mainstream media' shall include - print or electronic mode of the following:
i. Newspapers registered with the registrar of newspapers for India.
ii. News channels permitted by Ministry of Information and Broadcasting under Government of India.
iii. Content published by the publisher of news and current affairs content as defined under the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, and
iv. Newspapers or news channels or news and current affairs content similarly registered or permitted or regulated, as the case may be, in jurisdictions outside India. , which is not general in nature and which indicates that rumours of an impending specific material event or information in terms of the provisions of this Regulation are circulating amongst the investing public:

• Top 100 listed entities – w.e.f. 1 October 2023
• Top 250 listed entities – w.e.f. 1 April 2024.

The above information should be disclosed as soon as reasonably possible and not later than 24 hours from the reporting of the event or information. The entity should also provide the current stage of such event or information.

• Disclosure of communication received from any regulatory, statutory, enforcement or judicial authority: The amendment has now inserted Regulation 30(13), as per which an entity must disclose communication received from any regulatory, statutory, enforcement or judicial authority w.r.t. an event or information, which is required to be disclosed in terms of the provisions specified in this regard. Further, the disclosure of such communication should not be made if the entity is prohibited to do so by the concerned authority.

  Effective date: The above amendments came into force w.e.f. the 30^th day from the date of its publication in the Official Gazette, i.e., 15 July 2023.

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• Extension of applicability of corporate governance provisions to High Value Debt Listed Entities (HVDLEs): As per Regulation 15(1A) of the LODR Regulations, the corporate governance provisions are applicable to HVDLEs. These were applicable to HVDLEs on a comply or explain basis up to 31 March 2023 and on a mandatory basis post that. Basis the amendment introduced, the corporate governance provisions would be applicable to a HVDLE on a ‘comply or explain’ basis till 31 March 2024 and would become mandatory thereafter.

• Timeline for filling the vacancy of directors and key managerial personnel [Regulation 17(1E) and 26A of the LODR Regulations] Regulation 17(1) of the LODR Regulations prescribes provisions w.r.t. board composition of entities. Also, as per Regulation 25(6) of the LODR Regulations, an Independent Director (ID) who resigns or is removed from the board of an entity should be replaced by a new ID at the earliest, but not later than three months from the date of such vacancy. The existing provisions do not prescribe any timeline for filling up the vacancies of IDs that arise out of reasons other than resignation and removal (such as death, disqualification etc.) and for any other category of directors. In this regard, SEBI has now introduced an amendment, which provides that any vacancy of directors and Key Managerial Personnel (KMPs) (Compliance Officer, CFO and CEO/Managing Director/Whole-Time Director/Manager) should be filled within three months from the date of such vacancy.

Effective date: The amendment came into force w.e.f. the 30^th day from the date of its publication in the Official Gazette, i.e., 15 July 2023.

• Disclosure of cyber security incidents or breaches and loss of data/documents: As per the amendment introduced, entities are required to provide details of cyber security incidents, breaches, loss of data, or documents in the quarterly corporate governance report which must be submitted to the recognised stock exchange(s) within 21 days from the end of each quarter, in the format as prescribed by SEBI.

Effective date: The amendment came into force w.e.f. the 30^th day from the date of its publication in the Official Gazette, i.e., 15 July 2023

• Submission of Business Responsibility and Sustainability Report (BRSR): As per Regulation 34(2)(f) of the LODR Regulations, top 1,000 listed entities are required to make filings as per BRSR with effect from FY 2022-23. BRSR consists of Environmental, Social and Governance (ESG) disclosures, in the format prescribed by SEBI. In this regard, the amendment issued by SEBI states that:

• Certain entities should obtain assurance for the BRSR Core¹³BRSR Core would comprise of such key performance indicators as may be specified by SEBI from time to time in the manner which would be specified by SEBI from time to time, and
• Certain entities are also required to make disclosures and obtain assurance as per the BRSR Core for their value chain in the manner to be specified by SEBI from time to time.

The amendment further states that the remaining entities, including the ones which have listed their specified securities on the Small and Medium Scale Enterprises (SME) Exchange, may voluntarily disclose the BRSR or voluntarily obtain the assurance on the BRSR Core, for themselves or their value chain, as the case may be.

Effective date: The amendment came into force from the date of its publication in the Official Gazette, i.e., 14 June 2023.

• Disclosure on entity’s website: As per Regulation 46(2)(o) of the LODR Regulations, an entity should disclose a schedule of the analysts’ or institutional investors’ meet and presentations on its website. The amendment issued by SEBI has stipulated the timelines for such disclosure. As per the amendment, the disclosure should be made on the entity’s website at least two working days in advance (excluding the date of intimation and date of the meet).

Effective date: The amendment would come into force w.e.f. the 30th day from the date of its publication in the Official Gazette, i.e., 15 July 2023.

• Intimation to stock exchange(s): The provisions of Regulation 57 have been revised. As per the amendment, an entity should submit a certificate to the stock exchange(s) regarding status of payment of interest, dividend, repayment, or redemption of principal of non-convertible securities, within one working day of it becoming due, in the specified format.

Effective date: The amendment came into force from the date of its publication in the Official Gazette, i.e., 14 June 2023.

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To access the text of the amendments issued by SEBI, please click here