CONSULATATION PAPER ON LODR
INTRODUCTION
– Brief of Paper issued by SEBI dated 20th February and 21st February 2023.
– The consultation paper aims to introduce amendments to the SEBI (LODR) which will strengthen corporate governance at listed entities by empowering shareholders and to address issues.
01. Financial Results by Newly Listed Entity
- Currently, timeline for filing F/R for all entity is at par.
- Proposal: Newly listed entities to file their first financials as per the prescribed timeline for submission of quarterly / annual F/R or within 15 days from listing whichever is later.
02. Timeline to fill up Vacancy of Directors and KMP
- Currently, there is no timeline prescribe for filing up vacancy of ID arising out of reasons other than resignation and removal, such as death, disqualification, etc., and for the vacancies of directors other than IDs.
- Proposal: For directors- in below case vacancy shall be filled same day. (not required if complied reg. 17(1))
- appointment of non ID
- change in designation of director
- cessation due to completion of tenure
- In other case timeline will be same i.e. within 3 months from such vacancy.
Filing up vacancy for KMPs
- There is no specific provision in LODR in case of casual vacancy of KMPs however same is mentioned under CA 2013 i.e. 6 months.
- SEBI proposed to insert new timeline to fill up the vacancy of KMPs within 3 months from the same of such vacancy.
03. Freezing of demat a/c of CEO/MD/WTD
- 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.
- Further, It is proposed that the demat accounts MD(s) / WTD(s) / CEO(s) who resign from a non-compliant entity shall be unfrozen after the listed entity complies with the applicable provisions and / or pays the outstanding fines, or on the 90th day from the date of getting relieved from the company, whichever is earlier.
04. Agreements
It is proposed to introduce a new clause 5A in para A of part A of Schedule III of the LODR Regulations.
Further, agreements whose purpose and effect is to impact the management or control or impose any restriction or create any liability also needs to be disclosed.
However, agreements entered by a listed entity for the business operations of a company (eg. supply agreements, purchase agreements etc.) is proposed to be excluded from the scope of disclosures.
From April 1, 2023, the details of the aforesaid agreements entered during the financial year shall be disclosed, in addition to disclosure requirements under regulation30 read with Schedule III of the LODR Regulations, in the Annual Report of the listed entity (i.e., from FY 2023-24 onwards).
If the listed entity is not party to any agreement as may be specified, it shall be obligatory on the part of the shareholders, promoters, promoter group, related parties, directors, key managerial personnel or any other officer of a listed entity or of its holding, subsidiary, associate company who are parties to such agreements to inform the listed entity about such agreements within 2 working days from the date entering into such an agreement. The listed entity, in turn, shall disclose the said details to the Stock Exchanges with in the timelines for disclosure of events specified in para A of Part A of Schedule III of the LODR Regulations.
05. Special rights to certain shareholders
It is proposed that any special right (existing / proposed) granted to a shareholder of a listed entity shall be subject to shareholder 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 the amendments to the LODR Regulations.
06. ‘Scheme of Arrangement’ framework
- 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 the listed company can be acted upon only if the votes cast by the public shareholders in favour of the proposal are more than the number of votes cast by the public shareholders against it. This shall be in addition to the requirement to pass a Special Resolution as provided in the Companies Act.
07. Addressing the issue of Board Permanency
- 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, 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.
- The aforesaid provisions would not be applicable to those cases where the director is appointed pursuant to the orders of a Court or a Tribunal.
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