Pursuant to the recommendations made by Uday Kotak Committee Report, Securities and Exchange Board of India (SEBI) notified SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018 (Amendment Regulations) on May 9, 2018. The Amendment Regulations specifies various dates from which the amendments made shall come into force.
One interpretation could be that these provisions would become effective from the said dates and needs to be complied thereafter. However, as evident from the practice followed by SEBI, it notifies the regulations/ amendments beforehand and provides a transition time for companies to comply with the same before the amendment comes into force. Eg. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 came into force from the ninetieth day (December 1, 2015) from the date of their publication in the Official Gazette (September 2, 2015). SEBI (Prohibition of Insider Trading) Regulations, 2015 came into force from the one hundred and twentieth day (May 15, 2015) from the date of its publication in the Official Gazette (January 15, 2015).
Accordingly, it can be inferred that listed entities should be compliant with the provisions of Amendment Regulations before the same come into force. On the date the amendment becomes effective and applicable on the listed entity, the listed entity should already be in compliance of the same. Therefore, there are several actionables which a listed entity needs to undertake to ensure compliance before April 1, 2019 unless the separate dates are specifically provided.
1. Reg. 2 (1) (zb): Amendment made to definition of related party to include any person or entity belonging to the promoter or promoter group of the listed entity and holding 20% or more of shareholding in the listed entity shall be deemed to be a related party. Effective date: April 1, 2019.
2. Reg. 16 (1) (b) (ii) and (viii): Amendment made to definition of independent directors to regard such persons as ineligible who are member of the promoter group of the listed entity or who is not a non-independent director of another company on the board of which any non-independent director of the listed entity is an independent director. Effective date: October 1, 2018
3. Reg. 16 (1) (b): Amendment made to definition of material subsidiary by reducing the threshold from twenty percent to ten percent. Effective date: April 1, 2019.
4. Reg. 16 (1) (d): Amendment made to definition of senior management to include one level below chief executive officer/managing director/whole time director/manager (including chief executive officer/manager, in case they are not part of the board) and shall specifically include company secretary and chief financial officer. Effective date: April 1, 2019.
5. Reg. 17 (1) (a): Requirement to appoint woman ID by top 500 listed entities w.e.f. April 1, 2019 and by top 1000 listed entities w.e.f. April 1, 2020.
6. Reg. 17 (1) (c): Requirement to have minimum 6 directors by top 1000 listed entities w.e.f. April 1, 2019 and by top 2000 listed entities w.e.f. April 1, 2020.
7. Reg. 17 (1A): Requirement of special resolution for appointing/ continuing the directorship of any person as a non-executive director who has attained the age of seventy five years. The explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such a person. Effective date: April 1, 2019.
8. Reg. 17 (1B): Requirement of having a non-executive Chairman who shall not be related to the MD/ CEO of the listed entity. Applicable to top 500 listed entities on the basis of market capitalisation, as at the end of the immediate previous financial year. Effective date: April 1, 2020.
9. Reg. 17 (2A): Revised quorum requirement for every meeting of Board being one-third of its total strength or three directors, whichever is higher, including at least one independent director. Effective date: April 1, 2019 for top 1000 listed entities & April 1, 2020 for top 2000 listed entities. Determined on the basis of market capitalisation, as at the end of the immediate previous financial year.
10. Reg. 17 (6) (ca): Requirement to obtain approval of shareholders by special resolution every year, in which the annual remuneration payable to a single non-executive director exceeds fifty per cent of the total annual remuneration payable to all non-executive directors, giving details of the remuneration thereof. Effective date: April 1, 2019.
11. Reg. 17 (6) (e): Requirement to obtain approval of shareholders by special resolution for the fees or compensation payable to executive directors who are promoters or members of promoter group in case in excess of thresholds. Effective date: April 1, 2019.
12. Reg. 17 (10): Performance evaluation of independent directors by entire Board. Effective date: April 1, 2019.
13. Reg. 17 (11): Recommendation by the Board to the shareholders for each item of special business. Effective date: April 1, 2019.
14. Reg. 17A: Maximum number of directorships held at any point of time in equity listed entities. Effective date: April 1, 2019 for limit of 8 listed entities and April 1, 2020 for limit of 7 listed entities. Exemption to entities covered under Reg. 15 (2) will also apply in case of Reg. 17A.
15. Reg. 19 (2A): Revised quorum requirement for every meeting of NRC being one-third of its total strength or two members, whichever is greater, including at least one independent director in attendance. Effective date: April 1, 2019.
16. Reg. 19 (3A): NRC to meet atleast once a year. Effective date: April 1, 2019.
17. Reg. 20 (1): Stakeholders Relationship Committee (SRC) to specifically look into the various aspects of interest of shareholders, debenture holders and other security holders. Effective date: April 1, 2019.
18. Reg. 20 (2A): SRC’s composition to comprise of at least three directors, with at least one being an independent director. Effective date: April 1, 2019.
19. Reg. 20 (3): Chairman of SRC to be present at AGM to answer queries of the security holders.
20. Reg. (3A): SRC to meet once in a year. Effective date: April 1, 2019.
21. Reg 21 (3A): Risk Management Committee (RMC) to meet once in a year. Effective date: April 1, 2019.
22. Reg 21 (4): Role and responsibility of RMC to cover cyber security function. Effective date: April 1, 2019.
23. Reg 21 (5): RMC to be formed by top 500 listed entities. Effective date: April 1, 2019.
24. Reg 23 (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. Effective date: April 1, 2019.
25. Reg 23 (1A): Material RPT threshold in case of a transaction involving payments made to a related party with respect to brand usage or royalty revised. Transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeding two percent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity shall be considered material. Effective date: April 1, 2019.
26. Reg 23 (4): In case of voting for Material RPTs, related parties need not abstain from voting and can cast vote against/ not in favor of the transaction. Effective date: April 1, 2019.
27. Reg 23 (9): Disclosures of related party transactions on a consolidated basis to be submitted on half-yearly basis within 30 days from the date of publication of its standalone and consolidated financial results for the half year. Publish the same on the website too. Effective date: April 1, 2019.
28. Reg. 24 (1): At least one independent director on the board of directors of the listed entity shall be a director on the board of directors of an unlisted material subsidiary, whether incorporated in India or not. Effective date: April 1, 2019.
Threshold for determining material subsidiary shall not be that provided in the definition under Reg. 16 (1) (c). The term “material subsidiary” shall mean a subsidiary, whose income or net worth exceeds twenty percent of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year.
29. Reg. 24A: Requirement of annexing secretarial audit report with the annual report prepared for FY 2018-19 by all listed entity and its material unlisted subsidiaries incorporated in India. Exemption to entities covered under Reg. 15 (2) will also apply in case of Reg. 24A. Effective date: April 1, 2019.
30. Reg. 25 (1): An alternate director cannot be appointed for an independent director w.e.f. October 1, 2018. If any alternate director already appointed, he shall not continue with such appointment.
31. Reg. 25 (8) and (9): Declaration by ID at the first meeting as director/ first meeting of FY and whenever there is a change that he meets criteria of independence and taking on record of the same by Board after undertaking due assessment of the veracity. Effective date: April 1, 2019.
32. Reg. 25 (10): Obtaining Directors and Officers insurance (‘D and O insurance’) for all their independent directors of such quantum and for such risks as may be determined by its board of directors. Effective from October 1, 2018 by top 500 listed entities.
33. Reg. 29 (1) (f): Exemption from giving of prior intimation to the stock exchange(s) in case of the declaration of bonus by the listed entity not being on the agenda of the meeting of board of directors stands withdrawn. Effective from October 1, 2018.
34. Reg. 32 (7A): Disclosure of utilization of funds in the Annual Report till the funds raised through preferential allotment or QIPs have been utlised. Effective from April 1, 2019.
35. Reg. 33 (3) (b) and (e): Mandatory requirement to submit consolidated financial results. The listed entity shall also submit the audited or limited reviewed financial results in respect of the last quarter along-with the results for the entire financial year, Effective from April 1, 2019.
36. Reg. 33 (3) (g): Mandatory requirement to submit cashflow statement as part of its standalone and consolidated financial results for the half year. Effective from April 1, 2019.
37. Reg. 33 (3) (g): Limited review of at least eighty percent of each of the consolidated revenue, assets and profits, respectively shall have been subject to audit/ limited review for the purpose of quarterly consolidated financial results. Effective from April 1, 2019.
38. Reg. 33 (3) (i): Disclosure in the results for the last quarter in the financial year, by way of a note, the aggregate effect of material adjustments made in the results of that quarter which pertain to earlier periods. Effective from April 1, 2019.
39. Reg. 34 (1): Submission of annual report and notice of AGM sent to shareholders to the stock exchange on or before commencement of dispatch to shareholders. In case of changes, revised copy along with explanation to be sent within 48 hours of AGM. Effective from Annual report submitted for FY ending March 31, 2019.
40. Reg. 36 (1): Listed entities shall send Soft copies of full annual report to all those shareholder(s) who have registered their email address(es) either with the listed entity or with any depository. Effective from Annual report to be sent for FY ending March 31, 2019
41. Reg. 36 (4): The disclosures made by the listed entity with immediate effect from date of notification of Amendment Regulations shall be XBRL format. Shall in submitted to stock exchange and on its website in a readable / searchable format.
42. Reg. 36 (5): Notice sent to shareholders for appointment/ re-appointment of statutory auditors shall include disclosure in the explanatory statement in relation to proposed fees and credentials of the auditors. Effective from April 1, 2019.
43. Reg. 44 (5) and (6): The top 100 listed entities by market capitalization shall hold their annual general meetings within a period of five months from the date of closing of the financial year and shall provide one-way live webcast of the proceedings of the AGM. Effective from April 1, 2019.
44. Reg. 46 (2): The details required under the sub regulation will now have to be disclosed under separate sections in the website of the company. Further, the details of all credit ratings obtained by the entity for all its outstanding instruments, should be updated immediately as and when there is any revision in any of the ratings. Effective from October 1, 2018.
45. Reg 46 (2): Separate audited financial statements of each subsidiary of the listed entity in respect of a relevant financial year is required to be uploaded at least 21 days prior to the date of the annual general meeting. Effective from April 1, 2019.
46. Schedule II, Part C, Clause A: The role of Audit Committee has been enhanced it should also review the utilization of loans and/ or advances from/investment by the holding company in the subsidiary exceeding rupees 100 crore or 10% of the asset size of the subsidiary, whichever is lower including existing loans / advances / investments existing as on the date of coming into force of this provision. Effective from April 1, 2019.
47. Schedule II, Part D, Clause A: The role of Nomination and Remuneration Committee has been enhanced, as it is now required to recommend to the board, all remuneration, in whatever form, payable to senior management. Effective from April 1, 2019.
48. Schedule II, Part D, Clause B: The role of Stakeholders Relationship Committee has been completely substituted and a broader role has been prescribed. Effective from April 1, 2019.
49. Schedule III, Part A, Clause A: In case of resignation of the auditor, detailed reasons for resignation as given by the auditor, is now required to be disclosed by the listed entities to the stock exchanges as soon as possible but not later than twenty-four hours of receipt of such reasons from the auditor. Effective from April 1, 2019.
50. Schedule III, Part A, Clause A: In case of resignation of the Independent Director, the detailed reason for such resignation is required to be disclosed to the SEs, within seven days of the resignation, including a confirmation from the ID that there is no other material reasons other than those provided.
51. Schedule IV, Part A, Clause BB: Where the impact of the audit qualification is not quantifiable, the management is now mandatorily required to make an estimate which the auditor shall review and report accordingly. For this purpose, the management may be permitted to not provide estimate on matters like going concerns or sub-judice matters; in which case, the management shall provide the reasons and the auditor shall review the same and report accordingly. Effective from April 1, 2019.
52. Schedule V, Part A: Disclosures of transactions of the listed entity with any person or entity belonging to the promoter/promoter group which hold(s) 10% or more shareholding in the listed entity, in the format prescribed in the relevant accounting standards for annual results is required to be made. Effective from April 1, 2019.
53. Schedule V, Part B: The MDA should now include the details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefor, including various ratios. Effective from April 1, 2019.
54. Schedule V, Part C: The following changes has been done in the details required to be provided in the CG Report of a company:
(a) the names of the listed entities where the person is a director and the category of directorship is required to be disclosed. With effect from the Annual Report for the year ended 31st March 2019.
(b) A chart or a matrix setting out the skills/expertise/competence of the board of directors.
(c) Confirmation from the board, that in their opinion, the independent directors fulfill the conditions specified in these regulations and are independent of the management. Effective from April 1, 2019.
(d) Detailed reasons for the resignation of an independent director who resigns before the expiry of his tenure along with a confirmation by such director that there are no other material reasons other than those provided. Effective from April 1, 2019.
(e) List of all credit ratings obtained by the entity along with any revisions thereto during the relevant financial year, for all debt instruments of such entity or any fixed deposit programme or any scheme or proposal of the listed entity involving mobilization of funds, whether in India or abroad, is required to be disclosed. Effective from April 1, 2019.
(f) Details of utilization of funds raised through preferential allotment or qualified institutions placement as specified under Regulation 32 (7A) is required to be disclosed. Effective from April 1, 2019.
(g) Certificate from a PCS that none of the directors on the board of the company have been debarred or disqualified from being appointed or continuing as directors of companies by the Board/Ministry of Corporate Affairs or any such statutory authority. Effective from April 1, 2019.
(h) Non-acceptance of any recommendation of any committee of the board which is mandatorily required, is required to be disclosed along with the reason of non-acceptance. Effective from April 1, 2019.
(i) Disclosure of the total fees for all services paid by the listed entity and its subsidiaries, on a consolidated basis, to the statutory auditor and all entities in the network firm/network entity of which the statutory auditor is a part. Effective from April 1, 2019.
 All existing material related party contracts or arrangements entered into prior to the date of notification of these regulations and which may continue beyond such date shall be placed for approval of the shareholders in the first General Meeting subsequent to notification of these regulations.
(Author is associated with Vinod Kothari & Company and can be reached at [email protected])