SEBI Ups the Ante: Enhanced Corporate Governance for High-Value Debt Listed Entities - MMJC

Securities and Exchange Board of India (‘SEBI’) vide its amendment notification Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2025 [‘LODR amendment’] dt: March 27, 2025, notified provisions for High Value Debt Listed Entities [‘HVDLE’]. HVDLE means an entity who has its listed non-convertible debt securities listed on a recognized stock exchange having outstanding principal value of rupees one thousand crore or more as on March 31. These provisions have become effective from the date of notification in the official gazette (i.e. March 27, 2025’]

Reasonable time period for compliance with provisions by HVDLE

As provisions relating to HVDLE are made effective immediately the question that arises is whether any reasonable time period is there with HVDLE for compliance with provisions of law. Hon’able High Court of Kerala in case of KK Balakrishna Pisharody V. Kerala State Electricity Board and Others, dt: November 6, 1987, held that, “When no time limit is fixed, provisions has to complied with reasonable time. Reasonable time depends upon the facts and circumstances of each case”. Further as per Law Lexicon the term ‘Reasonable Time” is defined to be so much time as is necessary, under the circumstances, to do conveniently what the contract or duty requires should be done in a particular case.

What is reasonable time of compliance would depend on compliance requirement for each provision of LODR amendment. It may also differ for each regulation. Listed entities hence need to ensure compliance with LODR amendment provisions within a reasonable timeframe as may be applicable.

Analysis of LODR amendment

Below is the analysis on the applicability of revised provisions:

• Increase in threshold of non-convertible debt securities for identification of HVDLE: Till now entities having their outstanding principal value of non-convertible debt securities listed worth Rs 500 crore or more were considered as HVDLE irrespective of whether its specified securities (viz. equity shares or anything convertible into equity) have been listed or not. Entities having their outstanding principal value of non-convertible debt securities listed worth Rs 500 crore or more were required to comply with corporate governance provisions (viz. regulation 15 to 27 and relevant provisions of schedule V of LODR) of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements), Regulation, 2015 [‘LODR’] on ‘comply’ or ‘explain’ basis till March 31, 2025.

SEBI has now vide its LODR amendment, notified that an entity would be considered as HVDLE, irrespective of the fact whether its specified securities are listed or not, if it has outstanding principal value of non-convertible debt securities listed worth Rs 1000 crore or more as on March 31[1]. So, if as on March 31, 2025, an entity has non-convertible debt securities listed worth Rs 1000 crore or more then it will be considered as HVDLE for FY 25-26. SEBI has further stated that entities having their specified securities listed and their outstanding principal value of non-convertible debt securities of Rs 1000 crore or more listed, shall also be considered as HVDLE.

• Provisions applicable for HVDLE: Once an entity is categorized as HVDLE it will have to comply with corporate governance provisions. If a HVDLE already has its specified securities (viz. equity shares or any security convertible into equity shares) listed on recognized stock exchange then it needs to comply with regulation 15 to regulation 27 of LODR[2]. If an entity does not have its specified securities listed on a recognized stock exchange then it will have to comply with newly added chapter VA of LODR. This demarcation has created ease and prevented overlap for entities that have their equity and their non-convertible debt securities listed[3].

Entities need to monitor their non-convertible debt securities issued and listed on stock exchanges. SEBI has now specified that once an entity crosses the limit of 1000 crores in value of its principal outstanding non-convertible debt securities listed then it will have to ensure compliance within six months from the date of provisions becoming applicable[4].

• Sunset clause: SEBI has provided ease by bringing in sunset clause of applicability of corporate governance provisions to HVDLE.

SEBI has stated that once the provisions of chapter VA of LODR become applicable to a HVDLE, will continue to remain applicable till the value of principal outstanding non-convertible debt securities is 1000 crore or more. An HVDLE whose value of principal outstanding listed non-convertible debt securities reduces and remains below 1000 crores for three consecutive financial years may cease compliance with provisions of chapter VA. SEBI has specified that the computation of three consecutive financial years would start from April 1, 2025 (i.e. end of FY 25-26)[5]

For entities who have their specified securities listed will not be able to cease compliance with provisions of regulation 15 to 27 of LODR even if its principal outstanding non-convertible debt securities reduces and remains below 1000 crores for three consecutive financial years, if corporate governance provisions under regulation 15 to 27 of LODR continue to remain applicable to it due to its paid up equity share capital exceeding rupees 10 crore and net worth exceeding rupees twenty five crore as on the last of date of previous financial year.

• Time limit for ensuring compliance with LODR: No time limit is provided by SEBI for compliance with provisions of chapter VA or regulation 15 to 27 as the case may be by HVDLE. HVDLE need to ensure compliance with effect from March 27, 2025 (i.e. date of notification of LODR amendment) or as soon as reasonably possible. SEBI in its board of directors note discussing amendment to LODR dt: March 27, 2025, has stated that corporate governance provisions were applicable on ‘comply or explain basis’ till March 31, 2025 for entities having their principal high value debt of Rs 500 crore or more. Hence sufficient time is already given to entities having their principal outstanding of non-convertible debt securities exceeding 1000 crore also to ensure compliance with the provisions of LODR[6].

So, if an entity has principal outstanding of non-convertible debt securities listed as on March 31 worth Rs 1000 crore or more then it will have to ensure compliance as on March 27, 2025 or as soon as reasonably possible.

E.g. If an entity crosses threshold of 1000 crore in value of principal outstanding non-convertible debt in the month of September 2025, then it will have to ensure compliance with applicable provisions within a period of six months (i.e. by March 2026). To ensure compliance would mean revisiting managerial remuneration, related party transactions prior approval, board composition etc. as per LODR or chapter VA of LODR norms.

• Transition of compliance: Entities having their principal outstanding non-convertible debt securities worth Rs 500 crore or more was required to ensure compliance with provisions of regulation 15 to 27 of LODR till March 31, 2025. Entities having their non-convertible debt securities listed of outstanding value (Principal value) of Rs 500 crore or more as on March 31, 2025, will not be considered as high value debt listed entities. Hence these entities shall cease to ensure compliance with corporate governance provisions with effect from March 27, 2025 (i.e. date of notification of amendment to LODR).

Conclusion

Applicability of corporate governance provisions with clarity is now the reality. With this applicability clarity it would be definitely easy for HVDLE to ensure compliance with applicable provisions.

Amendment to LODR can be accessed at following link:

https://www.sebi.gov.in/legal/regulations/mar-2025/securities-and-exchange-board-of-india-listing-obligations-and-disclosure-requirements-amendment-regulations-2025_93156.html

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[1] Reg. 15(1A) of LODR

[2] Explanation 5 to reg 15(1A) of LODR

[3] Reg 62C(1) of LODR

[4] 1^st proviso to reg. 62C(1) of LODR

[5] Explanation to reg 62C(2) of LODR

[6] https://www.sebi.gov.in/sebi_data/meetingfiles/dec-2024/1735215423736_1.pdf