SEBI has released a consultation paper aiming to bolster governance and transparency in listed entities under the SEBI (Listing Obligations Disclosures Requirements) regulations 2015. Key proposals include mandating a revised Annual Secretarial Compliance Report (ASCR) within 60 days post-financial year, integrating securities laws in the report’s format, and disclosing auditor fees and reasons for resignation/removal in annual reports. The paper also suggests setting eligibility criteria for appointing statutory auditors, aligning with Companies (Audit & Auditors) Rules 2014, and introducing thresholds for approval of Related Party Transactions (RPTs) by audit committees based on subsidiary turnover and net worth. Further, it clarifies definitions related to RPTs and exceptions for transactions between listed holding companies and wholly owned subsidiaries. Stakeholders are encouraged to provide feedback on these proposals before February 28, 2025.
1. Strengthening the secretarial compliance report of a listed entity
- Regulation 24A- Secretarial Audit and Secretarial Compliance Report
To mandate the listed entities to submit a secretarial compliance report within 60 days from the end of financial year. Revised Annual Secretarial Compliance Report (ASCR) format to be mandatory disclosure in the Annual Report of listed entities. Format for revised annual secretarial compliance report to include securities laws is annexed with consultation paper
- Regulation 48- Accounting Standards
to mandate adhered to both accounting standards and secretarial standards, along with inclusion of Secretarial auditor fees paid, reasons on resignation/ removal details in Annual report
2. Specifying eligibility criteria for appointment of statutory auditor of a listed entity and disclosures to the Audit Committee, Board of Directors and shareholders at the time of appointment / re-appointment of statutory auditor and secretarial auditor of a listed entity
- Regulation 36- Documents/Information to shareholders- Notice to shareholders in AGM
- To consider the appointment of statutory auditors/secretarial auditors with relation to Companies (Audit &Auditors) Rules, 2014, regarding auditors, qualifications, experience, and eligibility criteria for appointment based on size and requirements of the company.
- To prescribe format for disclosure of minimum information to audit committee, Board of Directors and shareholders of the listed entity is annexed to the consultation paper.
3. Facilitating ease of implementation with respect to approval of Related Party Transactions undertaken by (RPT) undertaken by subsidiaries of a listed entity
- Regulation 23- Related Party Transactions
For the RPT undertaken by a subsidiary of a listed entity, (i.e. to note an existing threshold of 10% of standalone turnover of the subsidiary for approval of RPTs by audit committee of the listed entity) and to introduce monetary threshold of Rs. 1000 crore for subsidiaries of Listed entity on Main Board and Rs. 50 crore for SME Listed entities. Based on the monetary threshold and percentage threshold, whichever is lower, to be considered for approval of RPTs by the audit committee of the listed entity. It shall be applicable to the subsidiaries which have financial track record and if there is no such financial track record for the subsidiaries, percentage-based threshold to be specified as 10% of standalone net worth of the subsidiary, which is to be certified by Practicing CA not more than 3 months prior to the date of seeking approval of audit committee of the listed entity.
4. Clarifications pertaining to applicability of RPT provisions
- To address the ambiguity in the definition of related party transactions [i.e. regulation 2(1)(zc)]and related party [i.e. regulation 2(1)(zb)], the related party of the subsidiaries to consider related party. An explanation to be added to the related party transaction definition.
- To specify “Listed” under Regulation 23(5)- Exceptions for RPT approval requirements, The sub-regulation is applicable when the transactions are between Listed Holding company and Wholly owned subsidiary & when the accounts of Wholly owned subsidiaries companies are consolidated with the listed holding company.
SEBI has invited comments on these proposals until 28th February 2025.
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