The Securities and Exchange Board of India (SEBI) released a comprehensive Industry Standards Note on Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) to ensure uniformity and transparency in material disclosures by listed entities [ISF guidance].
Key Disclosure Guidelines under Regulation 30 provided by ISF guidance
1. Interpretation of “value or the expected impact in terms of value” under Regulation 30(4)(i)(c):
- Computing Expected Impact for Disclosure of materiality event as per Part B: When assessing the expected impact of an event or information, listed entities must consider the potential effect on their financials over the next four quarters. This assessment period includes the quarter in which the event occurs, provided the event takes place within the first 60 days of that quarter.
- Requirement for the purpose of disclosure: When evaluating the materiality of an event, listed entities should consider the principles for measurement outlined in the applicable accounting standards, such as Ind AS 37. The accounts and finance team plays a pivotal role in conducting a Probable, Possible, and Remote (PPR) assessment, which is typically initiated whenever a significant event occurs, to evaluate its potential financial impact on the organization. In the event of a material development, a collaborative effort between the secretarial team, relevant stakeholders, and the accounts and finance team is essential to apply the PPR test, ensuring a comprehensive evaluation of the event’s financial implications and determining the appropriate course of action for disclosure or reporting purposes.
- Application of interpretation principle of Reddendo Singula Singulis for determining materiality of an event or information for disclosure:
- The long-awaited clarification has finally provided much-needed guidance to the industry, offering a fair and reasonable interpretation of the provisions. At the heart of this clarification lies the principle of “reddendo singular singulis,” a Latin phrase that translates to “rendering the singular to the singular.” This principle ensures that when applying numerical thresholds or materiality tests, the numerator and denominator must belong to the same family or category. In other words, apples must be compared to apples, and oranges to oranges. By adhering to this principle, companies can ensure that their calculations are accurate, consistent, and meaningful.
- The application of the “reddendo singular singulis” principle has far-reaching implications for companies, particularly when assessing materiality thresholds or determining the significance of a particular event or transaction. By ensuring that the numerator and denominator share a common basis or characteristic, companies can avoid misleading or distorted calculations that might otherwise lead to incorrect conclusions. For instance, when evaluating the materiality of a transaction, a company might need to compare the transaction value to its annual revenue or net worth. By applying the “reddendo singular singulis” principle, the company can ensure that it is comparing like-for-like, thereby obtaining a true and accurate picture of the transaction’s materiality.
- Listed entities may also provide additional context by disclosing details of indemnity and insurance claims that could mitigate the expected impact. When assessing materiality, listed entities should refer to Annexure A of ISF Guidance on selecting the relevant parameter(s) from profit, net worth, or turnover. This ensures that the correct parameter is used to determine materiality for different types of events.
2. Re-emphasis of compilation of information for disclosure of material event information: Identification of potential material event or information is legally responsibility of relevant employee of listed entity. Second proviso to Regulation 30(4)(ii) policy for determination of materiality provides that a listed entity shall frame materiality policy in a manner to assist relevant employees in identifying potential material events or information which shall be escalated and reported to the relevant Key Managerial Personnel.
For identification of potential material event or information relevant employees need to be coached. With this specification by ISF, it has become a law that listed entity would be required to impart training consistently / periodically to facilitate disclosure to stock exchange. Now in the event of non-disclosure or delay in disclosure, regulator may would want to understand the mechanism for ‘Material Event Identification and Reporting (MEIR) Program’.
- Re-emphasis on when information is due for disclosure: SEBI has reiterated that disclosure to stock exchanges must begin once an officer, as defined in section 2(59) of the Companies Act, 2013, becomes aware of an event through credible and verifiable channels of communication. This was already mentioned in Point 2.2, Annexure III, SEBI circular dt: July 13, 2023.
- What would be considered as ‘credible and verifiable channels of communication’ will have to be determined by the company.
- It is recommended to add in internal SOP or framework as to what is meant by ‘credible and verifiable channels of communication’?
- Defense and not exemption for disclosure: SEBI has now stated that if there is reasonable delay in complying with disclosure timelines on account of following reasons then defence may be available to listed companies:
- Force majeure events,
- Time needed for prima facie assessment of materiality for certain events (e.g., orders, fraud, winding-up petitions),
- Information/events related to subsidiaries, directors, key managerial personnel, senior management, or promoters.
- SEBI has allowed companies to defend reasonable delay in disclosure. The reasons for defending arise out of situations which were not in control of company or events for which listed entity was not a party. But it needs to be understood that this is a defense and not exemption. Listed companies need to use this defense judiciously. Listed companies will have to provide an explanation for the delay along with the disclosure.
3. Disclosure of show cause notice: Show cause notice received by the listed entity from any regulatory, statutory or enforcement authority may require disclosure under point 8 of Para B of Schedule III of SEBI LODR upon application of guidelines of materiality as specified under reg 30(4) of SEBI LODR. Existing show cause notices received by the company if any needs to be reviewed by the company in this context.
4. Clarification on sectoral regulator and enforcement agency: To facilitate disclosure under point 20, Para A, Part A, of schedule III, Annexure B of ISF Guidance, provides guidance on identifying applicable sector regulators or enforcement authorities. Action taken or order passed by sectoral regulator / enforcement agency would be required to be disclosed if such action or order is quantifiable and exceeds threshold specified by SEBI. Listed companies have to evaluate whether any specific sector regulator or enforcement authority depending on their business needs to be added in the list of sectoral regulators or enforcement authority. Accordingly, listed companies will have to amend their materialty policies. Further, SEBI has stated that disclosure of action taken or orders passed by any regulatory/ statutory/enforcement/ judicial/ quasi-judicial authority other than those specified in ISF Guidance note in Annexure B would also be required to be disclosed if such action or order is quantifiable and exceeds threshold specified by SEBI.
5. Disclosure of pending litigations, disputes, orders or actions taken vis a vis other applicable laws: Listed entities while evaluating the expected impact (and subsequently, the disclosure requirement) of pending litigation / dispute / order / action initiated or taken may also consider whether the disclosure of pending litigations, disputes, orders or actions taken is confidential in nature under any applicable law and/or requirement / direction of any regulatory, statutory, judicial or quasi-judicial authority, or any tribunal. SEBI in its informal guidance given to GAIL India Ltd dt: August 10, 2023[1] had given guidance on disclosure of information in the context of Arbitration and Conciliation Act, 1996. Now, SEBI has clarified the disclosure requirement in the context of other applicable laws also.
6. Outcome of board meeting: Disclosure of events or information which emanate from a decision taken in a meeting of board of directors under Regulation 30(6) read with Master circular dated November 11, 2024 read with circular dated December 31, 2024 issued by SEBI shall be applicable for filings in pdf form. XBRL filing may be done in 24 hours.
7. Relaxation from disclosure of copy of regulatory communication: Listed entities were required to make disclosure of communication from regulatory, statutory, enforcement or judicial authority under Regulation 30(13). SEBI has now relaxed this provision. SEBI has now stated that if the listed entities make disclosures of all relevant information as per the prescribed format in ISF Guidance note at annexure C under this requirement, they shall not be required to provide a copy of the communication from regulatory, statutory, enforcement or judicial authority. SEBI has further stated that listed entities shall not be required to disclose confidential and sensitive information, including proprietary information while making material disclosure under regulation 30 in the context of communication received from regulatory, statutory, enforcement or judicial authority. Listed company would now have to lay down process or frame guidelines for identification of what can be termed as confidential, sensitive and proprietary information?
8. Disclosure of fraud is now divided into two parts:
- Fraud relates to the listed company: The timelines stipulated for making disclosures to the stock exchanges would begin:
- once a prima facie assessment of fraud having occurred is completed, or
- upon the expiry of 4 weeks from the time when the listed company becomes aware of the alleged fraud, whichever is earlier.
- Further, the listed entities will be required to make final disclosure once the investigation is fully concluded. SEBI has now stated that, where for ascertaining whether a particular action is fraud or not a detailed assessment is not required, then disclosure of occurrence of fraud shall be made within 24 hours, and where a detailed assessment is required for ascertainment of fraud, then investigation shall be completed in four weeks and disclosure shall be made within 24 hours of completion of investigation.
- Fraud not where listed company is not involved or related: Where occurrence of fraud does not involve the listed company or is not in relation to the affairs of such listed company, but pertains to its promoter, director, key managerial personnel, senior management or subsidiary, the obligation of the listed company to make a disclosure shall trigger once an officer of that listed company has become aware of the occurrence of fraud, through credible and verifiable channels of communication in relation to the relevant parties. What is meant by credible and verifiable channels of communication shall be determined by the listed company in its internal framework or standard operating procedure.
9. Disclosure of resignation: It is clarified by SEBI that the timeline of 24 hours for disclosure of resignation of key managerial personnel, senior management, compliance officer, and non-independent director would start once the person has served last day in the listed company.[2] Further listed entities have SEBI’s nod for redacting certain portions from resignation letter of key managerial personnel, senior management, compliance officer, and director if they want except for detailed reasons.Listed companies need to keep in mind that resignation of key managerial personnel, senior management, compliance officer, and directors is a material information and may be also a unpublished price sensitive information as per SEBI (Prohibition of Insider Trading) regulations 2015.
As now listed companies would be required to disclose the resignation of key managerial personnel, senior management, compliance officer, and director on he/she serving last day, listed companies will have to make an entry in structured digital database maintained under SEBI (Prohibition of Insider Trading) regulations 2015 from the time of receipt of resignation till the time the disclosure is made to stock exchange, if the information of resignation is an unpublished price sensitive information.
10. Disclosure of indemnity, guarantee, surety etc.: Disclosure requirement pertaining to all material indemnity/ guarantee/ surety given in ordinary course of business or given to wholly owned subsidiaries or performance guarantees should not be disclosed. But in any of these cases above if material indemnity/ guarantee/ surety is invoked then disclosure needs to be given. Listed companies would now be required to provide for what is termed as ‘ordinary course of business’ in their materiality policy. This would help companies back up their practices with reasoning.
11. Premature disclosures: Disclosure of announcement/ communication through social media intermediaries or mainstream media without first disclosure to stock exchange under Regulation 30(4) read with Para A (18) of Part A of Schedule III would now need clarification from company. This also highlights importance of MEIR program.
12. Disclosure of meets: Analysts or institutional investors meet scheduled on urgent matters shall be disclosed to stock exchanges simultaneously along with explanation for short notice. SEBI has further stated that the meeting shall not be preceded or succeeded by any one-to-one meetings.
13. Legislative restriction: SEBI has clarified that restriction on transferability as a result of operation of any of the statutes or regulations applicable to the listed entity need not be disclosed. For instance, the RBI imposed restrictions on change in shareholding or the Insurance and Regulatory Development Authority of India (IRDAI) approval requirements for change in shareholding.
14. Disclosure of acquisitions: For insurance companies and Non-Banking Financial Companies (NBFCs), including Core Investment Companies registered with the RBI
- Acquisitions of listed or to be listed entities equity, convertible, or debt securities require disclosure only if the acquisition cost exceeds 2% of the investor entity’s net worth (based on last audited consolidated financial statements).
- For other types of acquisitions, the standard materiality thresholds under Regulation 30(4)(i)(c) apply to determine if disclosure is required.
Listed companies need to keep in mind that for treasury management purposes, acquisitions and disposals are explicitly not exempt and are subject to relevant regulations and reporting requirements.
15. Disclosure of Similar Litigations/Disputes: Listed entities must disclose litigations/disputes with similar legal or factual issues, if the total amount involved exceeds the materiality threshold.SEBI has stated that having the same opponent in multiple cases doesn’t require aggregation. Further litigations involving a listed entity and its subsidiaries also don’t require aggregation.Further SEBI has clarified that”Similar outcome” means that if one case has an unfavorable outcome for the listed entity, it may lead to similar unfavorable outcomes in other related cases. For tax matters, listed entities should combine (cumulate) separate proceedings, if they involve the same facts and legal issues and if the outcome of one proceeding is likely to affect the others. SEBI has further stated that matters with different facts and unrelated outcomes, even if the tax authority is the same need not be cumulated. Further matters involving a listed entity and its subsidiary with different facts and unrelated outcomes need not be cumulated, even if the opponent is the same.
Industry Standards on Regulation 30 of SEBI LODR can be accessed at https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20250225-72