SEBI had issued Consultation Papers in November 2022 and February 2023 for amending the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. SEBI had invited comments on these consultation papers and finally issued the amendments by way of Notification No. SEBI/LAD-NRO/GN/2023/131 dated 14th June, 2023. These amendments majorly relate to enhancing disclosure and governance requirements of listed entities.
EFFECTIVE DATE OF THE AMENDMENTS
The amendments are effective on the 30th day of publication in the official gazette i.e., 14th July, 2023, except for some of the requirements which were effective from 14th June, 2023, e.g., approval requirements in case of sale, lease or disposal of an undertaking outside scheme of arrangement.
The objective of this article is to provide an overview of the key amendments and provide the brief analysis of the amendments. Reference should be made to SEBI notification dated 14th June, 2023, and amended SEBI LODR Regulations, 2015 for a detailed understanding of the entire set of amendments.
TIMELINE FOR SUBMISSION OF FINANCIAL RESULTS SUBSEQUENT TO THE FIRST-TIME LISTING
Clause (j) has been added to the Regulation 33(3) of Chapter IV, Obligations of a listed entity which has listed its specified securities and non-convertible debt securities, to provide clarity on the submission of financial results for the entity listed for the first time. The entity subsequent to the listing, is required to 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, as per the below timeline:
- period specified in Regulation 33(3)(a) i.e., within 45 days from the end of each quarter other than the last quarter; or
- period specified in Regulation 33(3)(d) i.e., within 60 days from the end of the Financial Year (in case of the March quarter);
- within 21 days from the date of listing;
Whichever is later.
This amendment is applicable to the issuers whose public issues open on or after these regulations come into effect.
DISCLOSURE OF MATERIAL EVENTS/INFORMATION UNDER REGULATIONS 30 – INTRODUCTION OF QUANTITATIVE CRITERIA FOR DETERMINING MATERIALITY
The qualitative criteria governing disclosure of material events/information as per Regulation 30(4) is where the omission in discourse of such event/information is likely to result in:
- discontinuing or altering an event or information already available publicly; or
- significant market reaction if the said omission came to light at a later date.
Sub-regulation (4) of Regulation 30 has been amended and new quantitative criteria by way of threshold has been included for determining the materiality of events/ information as below:
The omission of an event or information, whose value or the expected impact in terms of value, exceeds the lower of the following:
- 2 per cent of the turnover as per the last audited consolidated financial statements of the listed entity;
- 2 per cent of the 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;
- 5 per cent of the average of absolute value of profit or loss after tax, as per the last 3 audited consolidated financial statements of the listed entity.
The thresholds are based on the last audited consolidated financial statements of the listed entity. Considering that the present financial year is the first year of applicability, the thresholds will need to be determined based on the consolidated financial statements as on 31st March, 2023. In case of profit related parameters, average needs to be computed for the last three financial years i.e., 2022-23, 2021-22, 2020-21.
Turnover has been defined under Companies Act, 2013 as the gross amount of revenue recognised in the profit and loss account from the sale, supply, or distribution of goods or on account of services rendered, or both, by a company during a financial year.
‘Absolute value of profit or loss after tax’ means to take absolute figures of profit / loss i.e., without netting off in case the company has losses in any of the financial year. The threshold for profit/loss is to be computed by taking the absolute values of profit or loss after tax, for the immediately preceding three financial years.
The amended regulations require the materiality policy to be framed in a manner so as to assist the relevant employees in identifying potential material events or information. The listed entity will have to ensure that the policy formulated by the listed entity for determining the materiality cannot dilute any requirement specified under the provisions of these regulations, and is required to assist the relevant employees in identifying any potential material event or information and reporting the same to authorised KMP for determining the materiality of such events or information and for making necessary disclosures to the stock exchange.
The new quantitative threshold would require listed entities to make timely disclosures of material information without exercising their judgement on whether they are required to be disclosed.
TIME PERIOD FOR DISCLOSURE OF MATERIAL EVENTS/ INFORMATION:
The disclosure of the material event or information to the stock exchange is required to be not later than the following:
- 30 minutes from the closure of Board Meeting where the decision regarding the event/ information is taken.
- 12 hours from the occurrence of event or information if such event or information emanates from within the listed entity.
- 24 hours from the occurrence of event or information if such event or information emanates NOT within the listed entity.
In case of delay in such disclosure, explanation for the same need to be disclosed. In case the timelines for the disclosure of events are specified in Part A of Schedule III of the regulations, such timelines need to be followed.
AMENDMENT IN PART A OF SCHEDULE III OF THE REGULATIONS IN RELATION TO EVENTS WHICH NEEDS TO BE DISCLOSED BASIS THE GUIDELINES FOR MATERIALITY
The following events have been added which need disclosure basis the guidelines for materiality:
- Arrangements for strategic, technical, manufacturing, or marketing tie-up.
- Adoption of new line(s) of business.
- Closure of operation of any unit, division or subsidiary (in entirety or in piecemeal).
- Pendency of any litigation(s) or dispute(s) or the outcome thereof which may have an impact on the listed entity.
- Frauds or defaults by employees of the listed entity which has or may have an impact on the listed entity.
- Delay or default in the payment of fines, penalties, dues, etc. to any regulatory, statutory, enforcement or judicial authority.
DISCLOSURE OF EVENTS/INFORMATION IRRESPECTIVE OF MATERIALITY
Para A of Part A of Schedule III has been amended to include certain events which need to be disclosed to the Stock Exchange(s) without any application of guidelines for materiality as specified in Regulation 30(4) as follows:
A. Events relating to fraud/ default in repayment / arrest of certain persons
The following events need to be disclosed:
- Fraud or defaults by a listed entity, its promoter, director, key managerial personnel, senior management or subsidiary; or
- Arrest of key managerial personnel, senior management, promoter or director of the listed entity, whether occurred within India or abroad.
‘Fraud’ is defined under Regulation 2(1)(c) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. ‘Default’ means non-payment of the interest or principal amount in full on the date when the debt has become due and payable.
In the case of revolving facilities like cash credit, an entity would be considered to be in ‘default’ if the outstanding balance remains continuously in excess of the sanctioned limit or drawing power, whichever is lower, for more than thirty days.
Default by a promoter, director, key managerial personnel, senior management, subsidiary means the default which has or may have an impact on the listed entity.
B. Event relating to restructuring / amalgamation (Amendments have been highlighted in bold)
The following events need to be disclosed:
Details relating to acquisition(s) (including agreement to acquire), Scheme of Arrangement (amalgamation, merger, demerger or restructuring), sale or disposal of any unit(s), division(s), whole or substantially the whole of the undertaking(s) or subsidiary of the listed entity, sale of stake in associate company of the listed entity or any other restructuring.
C. Events relating to resignation of certain persons
The following needs to be disclosed to the Stock Exchange(s) within 7 days from the date resignation comes into effect:
- resignation of key managerial personnel, senior management, Compliance Officer or director other than an independent director,
- the letter of resignation along with detailed reasons for the resignation.
D. Events relating to non-availability of certain persons
The following needs to be disclosed to the Stock Exchange(s):
- The event where MD or CEO was indisposed or unavailable to fulfil the requirements of the role in a regular manner for more than 45 days in any rolling period of 90 days.
- Reason for such indisposition or unavailability.
E. Event relating to voluntary revision of financial statements or Directors’ report
Voluntary revision of financial statements or the report of the board of directors of the listed entity under section 131 of the Companies Act, 2013.
Communication/ order from regulatory, statutory, enforcement or judicial authority – Disclosure under Regulation 30 (13).
Action(s) initiated, or orders passed by all regulatory, statutory, enforcement authority or judicial bodies against the listed entity or its directors, KMPs, senior management, promoter or subsidiary, in relation to the listed entity requires disclosure. The following events require disclosure:
- search or seizure; or
- reopening of accounts under section 130 of the Companies Act, 2013; or
- investigation under the provisions of Chapter XIV of the Companies Act, 2013;
In case of an action/order, the following details pertaining to the actions initiated, taken or orders passed will be required to be disclosed within 24 hours:
(i) name of the authority; (ii) nature and details of the action(s) taken, initiated or order(s) passed; (iii) date of receipt of direction or order, including any ad-interim or interim orders, or any other communication from the authority; (iv) details of the violation(s)/contravention(s) committed or alleged to be committed; (v) impact on financial, operation or other activities of the listed entity, quantifiable in monetary terms to the extent possible.
Action(s) taken, or orders passed by any of the above mentioned authority against the listed entity or its directors, KMPs, senior management, promoter or subsidiary, in relation to the listed entity, is also required to be disclosed; following details are required:
(i) suspension; (ii) imposition of fine or penalty; (iii) settlement of proceedings; (iv) debarment; (v) disqualification; (vi) closure of operations; (vii) sanctions imposed; (viii) warning or caution; or any other similar action(s) by whatever name called.
Disclosure of Agreements impacting listed entities – New regulation
A new Regulation 30A has been inserted in Chapter IV, Obligations of a listed entity which has listed its specified securities & non-convertible debt securities which requires disclosures of agreements specified in the newly inserted clause 5A of para A of part A of schedule III. There are numerous agreements that are entered into by shareholders e.g., SHAs, SPAs, performance related agreements etc. These may be entered into between investors, joint venture partners, family members etc. These agreements may or may not be having the listed entity as a party or even a confirming party. However, these agreements pertain to management or control of the listed entity and therefore, may require disclosure in terms of Clause 5A.
Who is required to make the above disclosures?
If 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 are parties to the above-mentioned agreement and the listed entity is not a party to such agreement.
The above mentioned person needs to inform the listed entity about the agreement within 2 working days of entering into such agreements or signing an agreement to enter into such agreements. In case the above agreements subsist on the date of notification of clause 5A to para A of part A of schedule III, then the above mentioned person needs to make disclosure to the listed entity on that date only. The listed entity in turn is required to disclose the information to the stock exchange and on its website within the timelines specified by the Board.
Information/ agreements specified in clause 5A of part A of Schedule III
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, which, either directly or indirectly or potentially or whose purpose and effect is to, impact the management or control of the listed entity or impose any restriction or create any liability upon the listed entity, need to be disclosed to the Stock Exchanges, including disclosure of any rescission, amendment or alteration of such agreements thereto, whether or not the listed entity is a party to such agreements:
Disclosure of such information in Annual Report for FY 2022-23 and FY 2023-24
Number of agreements that subsist as on the date of notification of clause 5A to para A of part A of schedule III, their salient features, including the link to the webpage where the complete details of such agreements are available.
Information disclosed under clause 5A of paragraph A of Part A of Schedule III needs to be disclosed in the Annual Report.
This amendment seeks to address information disparity and increases transparency and will also enable the listed entity to be made aware of the obligations that have been imposed upon it by the parties to such agreements.
Circumstances in which disclosure of such information to stock exchange is not required
If such agreements entered into by a listed entity in the normal course of business unless:
- they, either directly or indirectly or potentially or whose purpose and effect is to impact the management or control of the listed entity; or
- they are required to be disclosed in terms of any other provisions of the LODR Regulations.
The term “directly or indirectly” includes agreements creating obligations on the parties to such agreements to ensure that listed entities shall or shall not act in a particular manner.
BUSINESS RESPONSIBILITY AND SUSTAINABILITY REPORT (BRSR) – MANDATORY REASONABLE ASSURANCE
Vide Circular No. SEBI/HO/CFD/CFD-SEC-2/P/CIR/2023/122 dated 12th July, 2023, SEBI has mandated reporting of ESG disclosures by top 1000 listed companies (by market capitalisation) from FY 2023-24 onwards in the revised BRSR format. The revised format has added some additional questions in Section C, Principle Wise Performance Disclosures besides making some Leadership indicators as Essential Indicators. To enhance the reliability of disclosures in BRSR, SEBI has mandated the reasonable assurance of BRSR Core to top 150 listed entities (by market capitalisation) from FY 2023-24 onwards which will be extended to top 1000 listed entities (by market capitalisation) by FY 2026-27 in a phased manner vide amendment in Regulation 34(2)(f) of SEBI (Listing Obligations and Disclosure Requirement) Regulations, 2015 (LODR Regulations). BRSR core is a subset of BRSR.
In addition, KPIs for value chain needs to be disclosed by the top 250 listed entities (by market capitalisation) from FY 2024-25 on a comply-or-explain basis. Limited assurance on the same is required to be obtained with effect from FY 2025-26. For this purpose, the value chain encompasses the top upstream and downstream partners of a listed entity, cumulatively comprising 75 per cent of its purchases / sales (by value) respectively. SEBI also released a set of FAQs wherein it provided an indicative list of activities which the assurance provider cannot undertake besides clarifying that assurance of BRSR Core is profession agnostic.
Regulators and Investors are increasingly focussing on the ESG disclosures and their accuracy. Companies need to gear up for providing adequate information in their sustainability report. As reporting and assurance of sustainability related disclosures evolves audit committees have a critical role to play in expanding their existing oversight responsibilities for financial reporting and compliance to sustainability-related disclosures.
REPORTED INFORMATION IN THE MAINSTREAM MEDIA – NEW REQUIREMENT
Regulation 30 (11) of SEBI (LODR) Regulation, 2015 had been amended requiring top 100 and 250 listed companies to confirm, clarify or deny any reported event or information in the mainstream media 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 LODR regulation, are circulating amongst the investing public, as soon as reasonably possible and not later than twenty four hours from the reporting of the event or information. If the listed entity confirms the reported event or information, it shall also provide the current stage of such event or information. SEBI has also defined what constituted mainstream media in that Notification vide amendment in Regulation 2 (1)(ra).
Recently, SEBI vide Notification dated 9th October, 2023, has omitted the timelines and deferred the applicability of the above-mentioned provisions indefinitely. The three industry associations, viz. ASSOCHAM, CII and FICCI, have come together to form Industry Standards Forum (ISF) under the aegis of the Stock Exchanges on a pilot basis. ISF has taken up verification of market rumours as one of the pilot projects for formulating standards. The effective date for the aforesaid requirement would be specified by the SEBI, after reviewing the standards submitted by ISF1.
1 . Source: SEBI Board Meeting - Extension of timeline for verification of market rumours by listed entities – Amendment to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
WAY FORWARD
The Amendment Regulations have attempted to strengthen corporate governance standards and disclosure requirements of listed companies. These changes reflect SEBI’s commitment to create a more robust regulatory framework and promote investor confidence. The changes introduced can be considered as a step in the right direction as it has the effect of empowering the shareholders of listed companies by way of enhanced transparency and additional disclosures.