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March 31, 2023
SEBI Consultation Paper on Streamlining Disclosures by Listed Entities and Strengthening Compliance With SEBI LODR Regulations - MMJC
Securities and Exchange Board of India (“SEBI”) had issued Consultation papers in 2022-2023 on proposed amendments to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 [‘LODR Regulations”] on various topics. Now SEBI has in its board meeting dt: March 29, 2023 approved most of these propositions. A status report alongwith brief of respective consultation paper is as follows:
| Sl.no | Reg no. | Proposed Amendment | Propositions approved at SEBI Board meeting dt: March 29, 2023 |
| 1 | Introduction of Materiality threshold | Guidelines for materiality for events specified under Para B The events specified under Para B are required to be disclosed upon application of criteria of materiality as specified under regulation 30(4) of the LODR Regulations. SEBI also highlighted that most entities are seen to be following a very generic Materiality Policy, simply reproducing therein merely the regulatory provisions under LODR Regulations, affording them a lot of discretion to decide as to whether or not to disclose an event specified under Para B. Accordingly, SEBI had prescribed following thresholds to make provisions of Reg 30(4) more objective and non-discretionary: Listed entities shall disclose an event or information specified under Para B whose threshold value or the expected impact in terms of value exceeds the lower of the following: a. two percent of turnover, as per the last audited standalone financial statements of the listed entity; b. two percent of net worth, as per the last audited standalone financial statements of the listed entity; c. five percent of three-year average of absolute value of profit/loss after tax, as per the last three audited standalone financial statements of the listed entity. SEBI in this regard had further stated that Listed entities may provide additional quantitative threshold or criteria for determining materiality of events in their Materiality Policies but which shall not dilute the provisions of Reg. 30(4) in any manner. SEBI had further envisaging the challenges in complying with prompt disclosure had stated that a certain material event or information may originate at ground level to which the key managerial personnel(s) (KMPs) authorized by the board of directors to determine the materiality of an event or information as per the Materiality Policy of the entity may not have immediate access to. In such a scenario, the Materiality Policy of the listed entity should be framed in a manner so as to assist its employees in easily identifying potential material event or information in an objective manner and reporting it to the relevant key managerial personnel for onward disclosure by the company. | Effective date and amendment regulations yet to be notified. As per consultation paper, if we see from a listed company perspective whose Turnover – Rs. 1000 Crores; Net worth – Rs. 200 Crores; average PAT of last 3 years – Rs. 80 Crores; will have to disclose event or information whose threshold value or the expected impact in terms of value exceeds Rs. 4 Crores. For example, such company, even if it makes a fresh borrowing of Rs. 5 Crores will have to make disclosure to public. If SEBI introduces the same thresholds as was originally proposed in the Consultation Paper, it would change the fundamentals of disclosure of material information and may lead to overload of disclosure for India Inc. Retail investors may have to spend significant time in going through these disclosures and understand it’s long-term implications before making their investment decision. One will have to wait for the fine prints of the amendment, as to see how SEBI introduces the quantitative thresholds for determining ‘materiality’ of events / information’. Also, clarity on institutionalisation of implementation of Materiality policy will have to be looked upon in the fine prints. |
| 2 | Verification of market rumours. | Reg. 30(11) of SEBI LODR requires listed entity to confirm or deny any reported event on its own initiative. SEBI stated that in recent years, a growing influence is being noticed of not just print media, but also television and digital media. In order to stay contemporary and avoid creation of false market, companies need to keep pace and ensure verification of such rumours. | Market rumours to be verified and confirmed, denied or clarified, as the case may be, by top 100 listed entities by market capitalization effective from October 1, 2023 and by top 250 listed entities with effect from April 1, 2024. It is noteworthy, that SEBI has acknowledged and allowed companies to clarify on the rumours as against the original proposition of merely confirm or deny. |
| 3 | Reduction in Timeline for disclosure of information | SEBI had also proposed that material events or information which emanate from the listed entity, the timeline for disclosure by the entity shall be reduced from twenty-four hours to twelve hours. Further it was proposed that events or information which emanate from a decision taken in a meeting of board of directors, the disclosure shall be made within 30 minutes from the closure of such meeting. In this regard SEBI had in detail prescribed the events where timeline for disclosure was proposed to be reduced to 12 hours. | Effective date and amendment regulations yet to be notified. Hence, one will have to wait for the fine prints of the amendment to assess the impact comprehensively. |
| 4 | Disclosure of Agreements that binds Listed Entities | It was proposed that agreements that bind listed entities wherein even if listed entity is not part of it shall be required to be disclosed. Our detailed newsletter in this regard can be accessed at below link: https://www.mmjc.in/mmjc-insights-dated-27-feb-2023/ | Effective date and amendment regulations yet to be notified. However, one will have to wait for the fine prints of the amendment to assess the impact comprehensively and understand whether the same shall be relevant for the Annual Report for the FY 22-23. |
| Special rights to Pre-IPO shareholders/ Promoters | SEBI had floated a Consultation Paper whereby it was proposed to review provision relating to perpetuity of special rights. For further details please refer to our detailed newsletter in this regard can be accessed at below link: https://www.mmjc.in/mmjc-insights-dated-27-feb-2023/ | SEBI has approved this proposition by stating that the approval should be sought ‘periodically’. Effective date and amendment regulations yet to be notified. However, one will have to wait for the fine prints of the amendment to assess the impact comprehensively. | |
| 5 | Board Permanency In Listed Entities / need for periodic review | SEBI had floated a Consultation Paper whereby it was proposed to insert for periodic shareholder approval for any director serving on the board of a listed entity permanently. For further details please refer to our detailed newsletter in this regard can be accessed at below link: https://www.mmjc.in/mmjc-insights-dated-27-feb-2023/ | SEBI has approved this proposition by stating that the approval should be sought ‘periodically’. Effective date and amendment regulations yet to be notified. Hence, one will have to wait for the fine prints of the amendment to assess the impact comprehensively. |
| 6 | Filling of vacancy of Key Management Personnel | Timeline to fill up vacancy of directors, Compliance Officer, Chief Executive Officer (CEO) and Chief Financial Officer (CFO) in listed entities: It was proposed to insert a provision mandating to fill up the vacancy in three months. Our detailed insights on this can be accessed at below link: https://www.mmjc.in/mmjc-insights-dated-27-feb-2023/ | Effective date and amendment regulations yet to be notified. In absence of charging clauses for these positions, one will have to wait for the fine prints of the amendment to understand the positioning of the proposed amendment and impact thereof. |
| 7 | Sale, disposal or lease of assets of a listed entity outside the ‘Scheme of Arrangement’ framework | SEBI had floated a Consultation Paper whereby it was proposed to provide a framework for Sale, disposal or lease of assets of a listed entity outside the ‘Scheme of Arrangement’. For further details please refer to our detailed newsletter in this regard can be accessed at below link: https://www.mmjc.in/mmjc-insights-dated-27-feb-2023/ | Effective date and amendment regulations yet to be notified. However, one will have to wait for the fine prints of the amendment to assess the impact comprehensively. |
| 8 | Submission of first financial results by newly listed entities | SEBI had vide a consultation paper proposed to review the timelines for submission of financial results for newly listed entities. For further details please refer to our detailed newsletter in this regard can be accessed at below link: https://www.mmjc.in/mmjc-insights-dated-27-feb-2023/ | It is relevant for to be listed companies. Effective date and amendment regulations yet to be notified. |
| Propositions that are not approved by SEBI | |||
| 1 | Freezing of demat accounts | SEBI had floated a consultation paper providing for Freezing of demat accounts of the Managing Director(s), Whole-time director(s) and CEO(s) of a listed entity for continuing non-compliance with the LODR Regulations and / or non-payment of fines by a listed entity. For further details please refer to our detailed newsletter in this regard can be accessed at below link: https://www.mmjc.in/mmjc-insights-dated-27-feb-2023/ | Not approved. |