Oct 03, 2023

Key Amendments To SEBI LODR Regulations

To boost shareholder democracy and investor awareness, the Securities and Exchange Board of India (“SEBI”) has, by way of a Notification dated June 14, 2023, amended the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. Unless specified otherwise, these amendments are effective on and from 30 days of the date of Notification, i.e., from July 14, 2023. They have a wide-ranging impact on disclosure obligations of listed entities.

Summary of the key amendments introduced by the SEBI are set out below:[1]

Addressing Rumors in “Mainstream Media”

Top 100 listed entities from February 01, 2024 onwards and the top 250 listed entities from August 01, 2024[2] onwards are required to either confirm, deny or clarify any reported event/ information circulating in the “Mainstream Media” regarding impending specific material events/ information within 24 hours. Previously, there was no regulatory obligation mandating listed entities to address such rumors. If the listed entity confirms such rumor, it must provide details on the current stage of such an event/ information.

“Mainstream Media” has been defined to include:

i.    Newspapers registered with the Registrar of Newspapers for India;

ii.   News channels (permitted by the Ministry of Information and Broadcasting);

iii.  Content published by online paper, news portal, news aggregator, news agency and such other entity, which is functionally similar to publishers of news and current affairs content (but does not include newspapers, replica e-papers of the newspaper or individuals/ users not systematically transmitting content); or

iv.   Newspapers or news channels or news and current affairs content registered/ permitted/ regulated in jurisdictions outside India.

The top 100 and 250 listed entities will be determined based on market capitalization, as at the end of the immediately preceding financial year.

Introduction of Quantitative Criteria for Determining Materiality

Events/ information set out in paragraph B of Part A of Schedule III of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (the “SEBI LODR Regulations”, and together with the Notification, the “Amendments”) is required to be disclosed by a listed entity basis application of certain materiality thresholds.[3] In this regard, Regulation 30(4)(i)(c) has been amended to add a quantitative criteria.

Accordingly, now a listed entity must disclose an event/ information set out in paragraph B of Part A of Schedule III, if the value or the expected impact in terms of value of such event/ information exceeds the lower of:

i.    2% of turnover, as per the last audited consolidated financial statements of the listed entity; or

ii.   2% 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); or

iii.  5% 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.

((a), (b) and (c), together, the “Quantitative Thresholds”).

Changes to List of Events/ Information That Are Deemed Material

In terms of paragraph A of Part A of Schedule III of the SEBI LODR Regulations, certain events/ information is deemed to be material and are required to be disclosed by the listed entity (without the application of any materiality threshold):

i.    “Acquisitions” by a listed entity are required to be disclosed if such acquisitions qualify under certain prescribed tests. Additionally, the Amendments have introduced an additional test for this purpose – i.e., now, an acquisition whose “cost of acquisition or the price at which the shares are acquired exceeds the Quantitative Thresholds” mentioned above must also be disclosed.

Also, an additional disclosure requirement for “Sale of Stake in an Associate Company” has been introduced wherein a “Sale of Stake in an Associate Company” is disclosable basis certain tests – viz., if the amount of the sale exceeds the Quantitative Thresholds or if the sale results in the “Associate Company” ceasing to continue as such.

ii.   As per the Amendments, now details of agreements entered into by shareholders, promoters, promoter group entities, directors, related parties, key managerial personnel, employees of listed entity or its associate, holding, subsidiary company, among themselves or with the listed entity or with a third party, which directly or indirectly or potentially or whose purpose and effect is to:

  • impact management or control of listed entity; or
  • impose any restriction on the listed entity; or
  • create any liability upon the listed entity,

to be disclosed to the stock exchanges, on its website and annual report, whether or not the listed entity is a party to such agreement except such agreements entered in the normal course of business.

In case of subsisting agreements, they should have been disclosed to the listed entity by July 31, 2023[4], and the listed entity should have disclosed the details of such agreements to the stock exchanges and on its website by August 14, 2023[5].

iii.  Additionally, the following should now be disclosed:

  • fraud or defaults by directors, senior management or subsidiaries and the arrest of senior management and directors of the listed entity; and
  • details of governmental and judicial actions/orders in respect of search or seizure, re-opening of accounts, investigations under the Companies Act, 2013, or in respect of suspension, imposition of fine or penalty, settlement of proceedings, etc.,

iv.   Pursuant to the Amendments, any announcement or communication through mainstream media or social media intermediaries by directors/ promoters/ key managerial personnel/ senior management pertaining to material events/ information that has not been made available by the listed entity in the public domain, must now be disclosed by the listed entity to the stock exchanges. For purposes of these regulations, “social media intermediary” means an intermediary which primarily or solely enables online interaction between two or more users and allows them to create, upload, share, disseminate, modify or access information using its services.

Disclosure of Communication Received from Authorities

The Amendments have introduced Regulation 30(13) pursuant to which, if, a listed entity receives communication from Governmental or judicial authority pertaining to an event/ information that is required to be disclosed by it pursuant to provisions of Regulation 30, the listed entity must disclose such communication as well (along with the event/ information), unless the disclosure of such communication is prohibited by the authority.

 Shareholders’ Approval for Continuation of Directors of Listed Entities

The Amendments have introduced Regulation 17(ID) (to be effective from April 01, 2024) pursuant to which, except for certain identified categories of directors, continuation of directors on a listed entity’s board is subject to shareholders’ approval once every five years from the date of their appointment or reappointment. Continuation of directors serving on the board of directors of listed entity without approval for the past five years or more is subject to shareholders’ approval at the first general meeting after March 31, 2024.

Shareholders’ Approval for “Special Rights”

The Amendments have introduced Regulation 31B to the SEBI LODR Regulations, pursuant to which “Special Rights” granted to a shareholder will be subject to the approval by the shareholders in a general meeting by way of a special resolution once in every five years starting from the date of grant of such Special Right. The existing “Special Rights” to any shareholder must be ratified within five years of July 14, 2023. However, “Special Rights” granted to financial institutions pursuant to lending arrangements in ordinary course of business or granted to a debenture trustee on becoming a shareholder of the listed company is not subject to shareholders’ approval under Regulation 31B.

Shareholders’ Approval for Sale, Lease or Disposal of Undertaking(s)

The Amendments have introduced Regulation 37A to the SEBI LODR Regulations pursuant to which a sale/ lease/ disposal (not effected through a scheme of arrangement) by a listed entity of the whole undertaking(s) or a substantial part of an undertaking(s) requires shareholders’ approval through a special resolution and the approval of a majority of the public shareholders (no public shareholder that is a party to the transaction is entitled to vote on the resolution).

This requirement is not applicable to a sale/ lease/ disposal to a wholly-owned subsidiary (whose accounts are consolidated with the listed entity), or which are undertaken pursuant to covenants in agreements with financial institutions or a debenture trustees.

Several market participants have different views on the implications of the Amendments, and one will have to assess how the Amendments evolve over a period of time.

[1] This inter alia sets out only the key amendments that have been introduced. For the entire set of amendments, please refer to a copy of SEBI’s Notification dated June 14, 2023 bearing no. SEBI/LAD-NRO/GN/2023/131, at the following link SEBI | Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Second Amendment) Regulations, 2023.

[2] Amendments introduced by way of the SEBI Circular titled Extension of Timeline for Verification of Market Rumors by Listed Entities dated September 30, 2023 and bearing reference number SEBI/HO/CFD/CFD-PoD-1/P/CIR/2023/162.

[3] These materiality guidelines are set out in Regulation 30(4) of the SEBI LODR Regulations.

[4] Same as FN. 2.

[5] Same as FN. 2.

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