The Securities and Exchange Board of India (SEBI) has consistently spearheaded efforts to foster transparency and accountability within the Indian capital markets. One such instrumental policy has been the Listing Obligations and Disclosure Requirements (LODR) regulations. These regulations have unified listing agreements and established consistency across various stock exchanges, implementing a robust and efficient compliance framework. Additionally, they have fostered the integration of reporting practices to align with global standards. SEBI’s commitment to maintaining up-to-date regulations and promoting market participant awareness is evident in the regular introduction of amendments and modifications to the regulations.
SEBI has recently proposed further amendments to the LODR regulations, aimed at enhancing corporate governance in India. Introduced on June 14, the amendments entail a fresh series of revisions, underscoring SEBI’s role as a catalyst for transformation.
This article provides an overview of the SEBI (LODR) (Second Amendment) Regulations,2023of June 2023, delving into key updates and their potential implications for listed companies, investors, and the overall market landscape.
1. Mainstream Media and Prompt Reporting of Rumours:
Regulation 30 has been revised to require that starting from October 1, 2023, the top 100 listed entities (and subsequently, from April 1, 2024, the top 250 listed entities) respond promptly to events or information reported in mainstream media and widely circulating among investors. These entities must confirm, deny, or provide clarification within 24 hours from the time of reporting such events or information. If the listed entity confirms the reported event or information, it must also provide the current stage of such event or information. Previously, a mandatory requirement to clarify market rumours applied only if a clarification was sought by stock exchanges. Listed entities were not otherwise mandated to clarify market rumours.
2. Definition of Mainstream Media [Regulation 2(1)(ra)]:
The amendment defines “mainstream media” as including newspapers registered with the Registrar of Newspapers for India, news channels permitted by the Ministry of Information and Broadcasting under the Government of India, and content published by the publisher of news and current affairs content as defined under the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021. The definition also includes newspapers or news channels or news and current affairs content similarly registered or permitted or regulated in jurisdictions outside India.
3. Changes with Respect to Vacancies in the Office of the Compliance Officer and Key Managerial Personnel:
Modifications to Regulations 6 and 26 include clarifications regarding vacancies in such offices. The amendment inserts provisions which expressly prohibit the interim appointment of Compliance Officers, Chief Executive Officers, Managing Directors, and other KMPs unless such appointment complies with laws applicable in the case of a fresh appointment to such office and the obligations under such laws are made applicable to such person.
4. Shareholder Approval Required for Appointment/Reappointment:
Regulation 17 has been updated with a new addition, labeled as Regulation 17(1D), scheduled for implementation starting from April 1, 2024. The new provision states that the continuation of a director serving on the board of directors of a listed entity shall be subject to the approval by the shareholders in a general meeting at least once in every five years from the date of their appointment or reappointment. This requirement does not apply to the Whole Time Director, Managing Director, Manager, Independent Director, or a Director retiring as per the sub-section (6) of section 152 of the Companies Act, 2013, if the approval of the shareholders for the reappointment or continuation of the aforesaid directors or Manager is otherwise provided for by the provisions of these regulations or the Companies Act, 2013, and has been complied with.
5. Disclosure Requirements for Certain Types of Agreements Binding Listed Entities:
According to the amendment, any agreements made by shareholders (including promoters and entities related to the promoter group), related parties, directors, Key Management Personnel (KMPs), and employees of a listed entity, its holding company, subsidiary, or associate that affect the management or control of the listed company, impose restrictions on the listed company, or create liabilities for the listed company, must be disclosed by the listed entity to the stock exchanges. If the listed entity itself is not a party to such agreements, they must be disclosed to the listed entity within two working days of their execution.
6. Special Rights to Shareholders:
To enhance transparency and promote improved governance practices, the amendment introduces a new provision, labeled as Regulation 31B, which states that any special right granted to the shareholders of a listed entity shall be subject to the approval by the shareholders in a general meeting by way of a special resolution once in every five years starting from the date of grant of such special right.
7. Disclosure of Cybersecurity Breaches:
A new provision has been added to Regulation 27, which requires listed entities to disclose the details of cybersecurity incidents or breaches in their quarterly compliance reports to stock exchanges, to be made within 21 days from the end of each quarter.
8. Materiality Thresholds:
SEBI introduces significant advancements in materiality disclosure requirements by establishing specific materiality thresholds. These thresholds are as follows:
- Two percent of turnover, as per the last audited consolidated financial statements of the listed entity
- Two percent of net worth, as per the last audited consolidated financial statements of the listed entity, except in the case the arithmetic value of the net worth is negative
- Five percent of the average of the absolute value of profit or loss after tax, as per the last three audited consolidated financial statements of the listed entity
9. Timeline for Disclosing Material Information:
The amendment provides clarification and lays down an outer timeline for disclosing material information. The specified timelines for reporting and disclosure are as follows:
- Thirty minutes from the closure of the meeting of the board of directors in which the decision pertaining to the event or information has been taken
- Twelve hours from the occurrence of the event or information, in case the event or information is emanating from within the listed entity
- Twenty-four hours from the occurrence of the event or information, in case the event or information is not emanating from within the listed entity
10. Business Responsibility and Sustainability Report:
Regulation 34(2)(f) has been amended, resulting in the replacement of the Business Responsibility Report with the Business Responsibility and Sustainability Report. Under this amendment, one thousand listed entities, selected based on their market capitalization, are now required to submit a report containing disclosures on environmental, social, and governance aspects. The format and specifications for this report will be provided by the Board.
11. Sale, Lease or Disposal of an Undertaking Outside Scheme of Arrangement:
A notable addition is Regulation 37A, which addresses disclosures related to the sale, lease, or disposal of an undertaking outside the Scheme of Arrangement. This new regulation outlines the specific requirements for making disclosures in such cases. Under the newly added Regulation 37A, any listed entity intending to carry out the sale, lease, or disposal of the entire or substantially the entire undertaking must obtain prior approval from the shareholders through a special resolution.
The recent amendments to the LODR regulations mark a significant stride towards transparency, governance, and shareholder participation. By addressing areas such as cybersecurity disclosures, materiality thresholds, sustainability reporting, and shareholders’ agreements, these amendments create a robust framework for effective risk management, disclosure practices, and accountability. The regulatory focus on enhancing transparency and governance underscores the commitment of regulatory authorities to ensure up-to-date and globally aligned standards for listed entities. These amendments herald a new era of transparency, empowering investors and strengthening the overall integrity of the market.
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