After Migration From SME Emerge Platform to Main Board Further Applicability of SEBI LODR Regulations

After Migration From SME Emerge Platform To Main Board Further Applicability of SEBI LODR Regulations

In this Article, we have covered in brief the applicability of relevant provisions of SEBI (LODR) Regulations, 2015 after Migration of an issuer from SME Emerge platform to the Main Board.

In terms of Sub Regulation 2 of Regulation 15 of SEBI (LODR), 2015, the corporate governance provisions as specified in regulations 17, 17A, 18, 19, 20, 21, 22, 23, 24, 24A, 25, 26, 27 and clauses (b) to (i) and (t) of sub-regulation (2) of regulation 46 and para C , D and E of Schedule V are not applicable in respect of Listed entity which has listed its specified securities on the SME Exchange. However, as the issuer migrate from SME Emerge platform to the main board, the aforesaid regulations shall become applicable. A Brief about the regulations are explained below:

Regulation 17:  Board of Directors

The composition of board of directors of the listed entity shall be as follows:

• Board of directors shall comprises optimum combination of executive and non-executive directors with at least one woman director and not less than fifty percent of the board of directors shall comprise of non-executive directors;
• where the chairperson of the board of directors is a non-executive director, at least one-third of the board of directors shall comprise of independent directors and where the listed entity does not have a regular non-executive chairperson, at least half of the board of directors shall comprise of independent directors:
• where the listed company has outstanding SR equity shares, at least half of the board of directors shall comprise of independent directors;
• The board of directors shall meet at least four times a year, with a maximum time gap of one hundred and twenty days between any two meetings;
• The board of directors shall periodically review compliance reports pertaining to all laws applicable to the listed entity;
• lay down a code of conduct for all members of board of directors;

  Regulation 17A: Maximum number of directorships

• A person shall not be a director in not more than seven listed entities;
• A person shall not serve as an independent director in more than seven listed entities.
• Any person who is serving as a whole time director / managing director in any listed entity shall serve as an independent director in not more than three listed entities.

Regulation 18: Audit Committee.

Every listed entity shall constitute an audit committee.

• The committee shall have minimum three directors as members ;
• At least two-thirds of the members of committee shall be independent directors;
• All members of audit committee shall be financially literate and at least one member shall have knowledge of accounting or financial management;
• chairperson of the audit committee shall be an independent director;
• Company Secretary shall act as the secretary to the audit committee;
• Audit committee shall meet at least 4 times in a year and not more than 120 days shall elapse between two meetings;
• Quorum for audit committee meeting shall either be two members or one third of the members of the audit committee, whichever is greater, with at least two independent directors.

Regulation 19: Nomination and remuneration committee

• the committee shall comprise of at least three directors ;
• all directors of the committee shall be non-executive directors;
• at least two-third of the directors shall be independent directors;
• Chairperson of the committee shall be an independent director;
• The quorum for a meeting shall be either two members or one third of the members of the committee, whichever is greater, including at least one independent director;
• The committee shall meet at least once in a year.

Regulation 20: Stakeholders Relationship Committee

• Listed entity shall constitute a Stakeholders Relationship Committee;
• chairperson of this committee shall be a non-executive director;
• At least three directors, with at least one being an independent director, shall be members of the Committee;
• The committee shall meet at least once in a year.

Regulation 21: Risk Management Committee

• The board of directors shall constitute a Risk Management Committee;
• The Committee shall have minimum three members with majority of them being members of the board of directors, including at least one independent director;
• Chairperson of the committee shall be a member of the board of directors and senior executives of the listed entity may be members of the committee;
• The committee shall meet at least twice in a year and gap between any two consecutive meetings should not be more than one hundred and eighty days  elapse;
• The quorum for a meeting of the Committee shall be either two members or one third of the members of the committee, whichever is higher, including at least one member of the board of directors in attendance.

Regulation 22: Vigil mechanism

• Listed entity shall formulate a vigil mechanism/whistle blower policy for directors and employees to report genuine concerns.

Regulation 23: Related party transactions

1. The listed entity shall formulate a policy on materiality of related party transactions and on dealing with related party transactions including clear threshold limits duly approved by the board of directors and such policy shall be reviewed by the board of directors at least once every three years and updated accordingly.

2. All related party transactions and subsequent material modifications shall require prior approval of the audit committee of the listed entity:

Provided that only those members of the audit committee, who are independent directors, shall approve related party transactions.

3. As per regulation 23 of SEBI (LODR) Regulations, 2015, All material related party transactions shall require prior approval of the shareholders through resolution.

Please note:

Material Related Party transactions with a related party shall be considered material, if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds rupees one thousand crore or ten per cent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity, whichever is lower.

4. Related party transactions are required to be disclosed to the stock exchange on the date of newspaper publication of its standalone and consolidated financial results on half yearly basis.

Regulation 24: Secretarial Audit and Secretarial Compliance Report

Every listed entity shall

• submit a secretarial compliance report to stock exchanges, within sixty days from end of each financial year.
• also get secretarial Audit.

Regulation 25: Obligations with respect to independent directors

The listed entity shall familiarise the independent directors through various programmes, including the following:

(a) nature of the industry in which the listed entity operates;

(b) business model of the listed entity;

(c) roles, rights, responsibilities of independent directors; and

(d) any other relevant information

Regulation 26: Obligations with respect to employees including senior management, key managerial persons, directors and promoters.

Director shall not be a member in more than ten committees or act as chairperson of more than five committees across all listed entities in which he/she is a director which shall be determined as follows:

(a) the limit of the committees on which a director may serve in all public limited companies, whether listed or not, shall be included and all other companies including private limited companies, foreign companies, and companies under Section 8 of the Companies Act, 2013 shall be excluded;

(b) for the purpose of determination of limit, chairpersonship and membership of the audit committee and the Stakeholders’ Relationship Committee alone shall be considered.

Regulation 27: Corporate governance requirements

After Migration, as per regulation 27 of SEBI (LODR) Regulations, 2015, the listed entity shall submit a quarterly compliance report on corporate governance to the stock exchange(s) within 21 days from the end of each quarter.

Regulation 27 with respect of the compliance of corporate governance for a particular quarter, the listed status of an entity is seen as at the end of the quarter, whereas for the applicability of the IND AS, we have to see the status of the listed entity on the due date of the publication of the result.

Regulation 31: Shareholding Pattern

The listed entities which have listed their specified securities on SME Exchange shall submit to the stock exchange(s) a statement showing  holding of securities and shareholding pattern separately for each class of securities, on a half yearly basis within twenty one days from the end of each half year. After Migration, the listed entity shall submit the shareholding pattern on quarterly basis within twenty one days from the end of each quarter.

Regulation 32: Statement of deviation(s) and variation(s)

The listed entities which have listed their specified securities on SME Exchange shall submit the statement of deviations and variations as prescribed under this regulation on a half yearly basis. After Migration, the listed entities shall submit the statement of deviation and variations on a quarterly basis.

Regulation 33: Financial results

The listed entity shall submit financial results to the stock exchange within forty five days of end of each half year and the requirement of submitting ‘year-to-date’ financial results shall not be applicable for a listed entity which has listed their specified securities on SME Exchange. After Migration, the listed entity shall submit quarterly and year-to-date standalone financial results to the stock exchange within 45 days from the end of each quarter.

The listed entity shall submit audited standalone financial results for the financial year, within 60 days from the end of the financial year.

For the purpose of this regulation, any reference to “quarterly/quarter” in case of listed entity which has listed their specified securities on SME Exchange shall be respectively read as “half yearly/half year” and the requirement of submitting ‘year-to-date’ financial results shall not be applicable for a listed entity which has listed their specified securities on SME Exchange.

Applicability of IND AS

Companies that are listed on the SME exchange are not required to apply Ind AS on a mandatory basis. However, on migration to the main board, the companies is mandatory required to comply with Ind AS.

When a company filed an application for Migration from SME Emerge to Main board during a particular quarter/half year but finally got the approval of Migration after the close of that quarter/half year i.e in the subsequent quarter/half year then whether the compliance are to be done considering as SME entity or main board entity is to be seen.

Regulation 34: Annual Report

Para C D and E of Schedule V relating to Annual Report are not applicable in respect of Listed entity which has listed its specified securities on the SME Exchange. Now, after Migration, the Annual Report of listed entity shall contain any other disclosure specified in Companies Act, 2013 along with other requirements s specified in Schedule V of these regulations.

Para C:

Corporate Governance report shall be attached with Annual Report.

Para D:

Declaration signed by the chief executive officer stating that the members of board of directors and senior management personnel have affirmed compliance with the code of conduct of board of directors and senior management.

Para E:

Compliance certificate from either the auditors or practicing company secretaries regarding compliance of conditions of corporate governance shall be annexed with the directors’ report

Regulation 46: Website

Clauses (b) to (i) and (t) of sub-regulation (2) of regulation 46 are not applicable in respect of Listed entity which has listed its specified securities on the SME Exchange. Now, after Migration, the listed entity shall disseminate the following information under a separate section on its website under regulation 46.

b) terms and conditions of appointment of independent directors;

c) composition of various committees of board of directors;

d) code of conduct of board of directors and senior management personnel;

e) details of establishment of vigil mechanism/ Whistle Blower policy;

f) criteria of making payments to non-executive directors , if the same has not been disclosed in annual report;

g) policy on dealing with related party transactions;

h) policy for determining ‘material’ subsidiaries;

i) details of familiarization programmes imparted to independent directors including the following details:-

i) number of programmes attended by independent directors (during the year and on a cumulative basis till date),

ii) number of hours spent by independent directors in such programmes (during the year and on cumulative basis till date), and

iii) other relevant details

(t) Secretarial compliance report as per sub-regulation (2) of regulation 24A of these regulations;

Regulation 47: Advertisement

Regulation 47 is not applicable in respect of Listed entity which has listed its specified securities on the SME Exchange. Now, after Migration, the listed entity shall publish the following information in the newspaper:

a) financial results, as specified in regulation 33, along with the modified opinion(s) or reservation(s), if any, expressed by the auditor;

Provided that if the listed entity has submitted both standalone and consolidated financial results, the listed entity shall publish consolidated financial results along with

1) Turnover

2) Profit before tax and

3) Profit after tax, on a stand-alone basis, as a foot note; and a reference to the places, such as the website of listed entity and stock exchange (s), where the standalone results of the listed entity are available.

b) Notices given to shareholders by advertisement.

Conclusion

On Migration of an entity from SME Emerge Platform to the Main Board, as the requirement of a particular lot size is done away and consequently there could be more participation by the public at large, SEBI has mandated compliance with respect to more regulation of LODR.