Consultation Papers on Proposed amendments in SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 - MMJC

Securities and Exchange Board of India (“SEBI”) has issued two Consultation papers on proposed amendments to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 [‘LODR Regulations”].

One consultation paper was released on February 20, 2023 on below aspects:-

• Streamlining Disclosures by Listed Entities, and
• Strengthening Compliance with LODR Regulations

Another consultation paper was released on February 21, 2023 on below aspects:-

• Agreements binding listed entities
• Special rights granted to certain shareholders
• Sale, disposal or lease of assets of a listed entity outside the ‘Scheme of Arrangement’ framework and
• ‘Board Permanency’ at listed entities / Need for periodic review.

A. The highlights of this Consultation Paper dated February 20, 2023 are as follows: –

1. Streamlining Disclosures by Listed Entities: It is proposed to insert a new clause (j) in Regulation 33(3) such that:-

• If an entity gets listed within first 45 days of a quarter, then the timeline for submission of first quarterly financial statements (of the immediately succeeding quarter) shall be 15 days from the date of listing OR the normal timeline provided under Regulation 33 of LODR Regulations, whichever is later.
• If an entity gets listed during the latter part of 45 days of a quarter, then the financial results for the quarter before the date of listing also needs to be filed with stock exchanges, within 15 days of listing. As of now, there is no requirement to file financial results of that quarter, as the entity would have got listed post the end of timeline prescribed under Regulation 33 for submission of quarterly financial results.

2. Strengthening Compliance with LODR Regulations:

• Regulation 25(6) will be deleted. Instead, Regulation 17(1) shall provide for filling intermittent vacancy of directors within 3 months from the date of vacancy, if the composition of board of directors is not as per Regulation 17(1) post this vacancy. This change is proposed to cover the scenarios of vacancy in independent directors’ position due to reasons other than resignation and removal, like death, disqualification, etc. and explicitly not cover change in designation, appointment of NED & cessation of director on completion of term.
• Timeline of maximum 3 months will be prescribed for filling the vacancy of Compliance Officer, CFO and CEO/ MD/ WTD/ Manager.
• It is proposed that the demat account of the WTDs, including the MD, and CEO(s) may be frozen, in addition to the demat account(s) of the promoters, for continuing non-compliance and / or non-payment of fines by a listed entity. There are other provisions to be prescribed for unfreezing the demat accounts of MD(s) / WTD(s) / CEO(s) who resign from a non-compliant entity and also a new MD / WTD / CEO joining a non-compliant entity.

B. The highlights of this Consultation Paper dated February 21, 2023 are as follows:-

1.Agreements binding Listed Entity: It is proposed to add a disclosure requirement for agreements which, either directly or indirectly 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 listed entity, whether or not the listed entity is a party to such agreements, by proposed insertion of a new clause  5A in para  A  of  part  A  of  Schedule  III  of  the  LODR  Regulations. Provided further that revision(s) or amendment(s) and termination(s) of such agreements shall also be disclosed. It is proposed to make this effective from April 1, 2023 and all existing and subsisting agreements before that to be disclosed by June 30, 2023.

• Disclosure in annual reports: Additionally, it is proposed to mandate that the details of such agreements shall form part of Annual Report from FY 2023-24 onwards. If any such agreement is existing and subsisting as on March 31, 2023 then disclosure of same is proposed to be mandated in annual report of FY 2022-23 also.
• Disclosure of agreements where listed entity is not party: If the listed entity is not a party to the agreement, then it is proposed to mandate that such party to the agreement shall inform the listed entity in 2 working days form the date of entering into agreement which would in turn be disclosed by listed entity to stock exchange in 2 working days of receipt of information. For existing and subsisting agreements as on March 31, 2023 disclosure shall be required to be made by June 30, 2023.
• Obligations to seek Board and Shareholders approval:-
  • With respect to future agreements: In case of any  future  agreement, whether  or  not  the  listed  entity  is  party  to  such  an  agreement  but  excluding agreements entered into the  normal  course  of  business by  a  listed  entity, which imposes  or  has  the  effect  of imposing any restriction or liability on a listed entity, it is proposed to mandate that the Board of Directors shall provide its opinion, along with detailed rationale, as to whether such an agreement is in the economic interest  of  the  listed entity and place before shareholders while seeking approval through special resolution and ‘majority of minority’.
  • With respect to existing and subsisting agreements: It is also proposed that if the listed entity is not a party to any existing and subsisting agreement imposing or having the effect of imposing any restriction or liability on a listed entity, the same shall be placed before the Board of Directors for consideration. It is proposed to mandate that all such existing and subsisting agreements have to be placed before the shareholders in the first general meeting (AGM or EGM) of the listed entity held after April 1, 2023, for ratification and the future obligations arising out of such agreements shall be contingent upon ratification by the shareholders.

2. Review of special rights conferred to certain shareholders as per the AOA of a listed entity: It is proposed that any special right (existing / proposed) granted to a shareholder of a listed entity shall be subject to shareholders approval once in every 5 years from the date of grant of such special rights. Further, the existing special rights available to shareholders shall be renewed within a period of 5 years from the date of notification of this amendment to the LODR Regulations.

3. Sale, disposal or lease of assets of a listed entity outside the ‘Scheme of Arrangement’ framework:  In order to strengthen the extant framework of slump sale executed outside the scheme of arrangement framework to safeguard the interest of minority shareholders and to align with the requirement, as applicable, under scheme of arrangement, the following proposals are made:

• Introducing provisions in LODR Regulations for sale, disposal or lease of whole or substantially the whole of the undertaking of the listed company.
• Mandating disclosure of the objects and commercial rationale for such sale, disposal or lease, to the shareholders;
• Such sale, disposal or lease of whole or substantially the whole of one or more undertaking of the listed company, can be acted upon only if the ‘majority of public shareholders’ approve in addition to the requirement to pass a Special Resolution as provided in the Companies Act.

4. Addressing the issue of board permanency in listed entities / need for periodic review of directors’ continuation by shareholders

• As on March 31, 2024, if there is any director serving on the board of a listed entity without his / her appointment or re-appointment being subject to shareholders’ approval during the last 5 years i.e., from April 1, 2019, it is proposed that the listed entity shall take shareholders’ approval in the first general meeting to be held after April 1, 2024, for his / her continuation on the board of the listed entity.
• From April 1, 2024, subject to the other applicable provisions of law, the listed entity shall ensure that the directorship of all directors serving on the board or appointed to the board is put up to shareholders for approval at least once in every 5 years. (Not be applicable on Court or Tribunal  appointed director).

The timeline for submission of comments on both these Consultation paper to SEBI is March 6, 2023 and March 7, 2023 respectively.

The link for these Consultation Papers is given below

Consultation Paper dated February 20, 2023:-

https://www.sebi.gov.in/reports-and-statistics/reports/feb-2023/consultation-paper-on-streamlining-disclosures-by-listed-entities-and-strengthening-compliance-with-sebi-listing-obligations-and-disclosure-requirements-regulations-2015_68194.html

Consultation Paper dated February 21, 2023:-

https://www.sebi.gov.in/reports-and-statistics/reports/feb-2023/consultation-paper-on-strengthening-corporate-governance-at-listed-entities-by-empowering-shareholders-amendments-to-the-sebi-lodr-regulations-2015_68261.html

The detailed newsletter on these Consultation Papers shall be covered in our MMJC Insights in due course!