Stay informed about the latest SEBI LODR amendments set to be enforced from April 1, 2023, for listed entities. Explore key changes in regulations impacting compliance, related party transactions, corporate governance, and more.
SEBI has introduced several regulatory updates in the previous quarter, which necessitate listed companies to comply with new requirements starting from 1st April 2023. The listed companies must carefully observe the amendments regarding the definition of key managerial personnel, changes in board compliance, related party disclosures, and events of disclosure of information by listed entities. In these updates, SEBI has primarily focused on amendments related to related party transactions.
Lowered Threshold for Identifying Related Parties: 10% Equity Shareholding Now Considered Significant:
If a person or entity has a direct or beneficial interest in 10% or more of the equity shares of a listed company, they will now be considered a related party. This threshold has been lowered from 20% previously
Introduction of a New Related Party Transaction:
If a transaction between a listed company or any of its subsidiaries and an unrelated party is intended to benefit a related party of the listed company or any of its subsidiaries, prior approval from the audit committee is required. This applies to the transfer of resources, services, or obligations
The Limit for Audit Committee Approval of Related Party Transactions Entered into by a Subsidiary Has Changed:
Approval from the Audit Committee of the listed company is required for any related party transaction entered into by a subsidiary if the value of the transaction during a financial year exceeds 10% of the subsidiary’s annual standalone turnover as per the latest audited financial statements.
New Requirement for Half-Yearly Disclosures to Stock Exchange: Same-Day Publication with Standalone and Consolidated Financial Results:
Previously, half-yearly disclosures to the stock exchange had to be made within 15 days of the publication of standalone and consolidated financial results. However, from April 1, 2023, onwards, half-yearly disclosures to the stock exchange must be made on the same date as the publication of standalone and consolidated financial results.
The Corporate Governance Provisions of Regulation 16 to 27 of LODR now apply to high-value debt-listed entities:
Under Regulation 16(1)(c), a material subsidiary refers to a subsidiary whose income or net worth is more than 20% of the consolidated income or net worth of the company and its subsidiaries. To create a policy for determining a material subsidiary
- According to Regulation 17(3), the board is responsible for periodically reviewing compliance reports related to all laws applicable to the company and the measures taken to address non-compliance issues
- Regulation 17(4) requires the board to ensure the existence of a plan for the smooth and systematic appointment of individuals to the board and senior management positions
- Regulation 17(5) mandates the creation of a code of conduct for the board and senior management, which includes the duties of independent directors as outlined in the Companies Act, 2013.
- According to Regulation 17(6), shareholder approval is required to determine the maximum number of stock options that can be granted to non-executive directors in a year and in total
- Under Regulation 17(7), the board must be provided with the minimum information specified in Part A of Schedule II
- Regulation 17(8) requires the CEO and CFO to provide the board with a compliance certificate on the financial statements in the format specified in Part B of Schedule II (which is the same as Clause 49 Annexure I(V)). A frequently asked question clarifies that individuals with the authority of the CEO/CFO, regardless of their job titles, may also sign the certificate
- Regulation 17(6) mandates that the board recommend all fees or compensation to be paid to non-executive directors, including independent directors. However, shareholder approval is not required for sitting fees
- Under Regulation 17(9), a procedure must be established for informing the board about risk assessment and minimization procedures. It is the board’s responsibility to develop and implement a risk management plan
- Regulation 17(10) requires the entire board to conduct a performance evaluation of independent directors, and the director being evaluated must not participate in the evaluation process
- Under Regulation 18(1), the audit committee must have at least two-thirds of its total strength as independent directors, which departs from the requirement under Section 177(1) of having a majority of independent directors
- Regulation 21(1) pertains to the Risk Management Committee (RMC). The Board is responsible for defining the role and responsibilities of the committee, and a majority of its members should be Board members. However, the committee can also include senior executives. It is important to note that this requirement is applicable only to the top 100 companies in terms of market capitalization
- Regulation 27 requires companies to file a quarterly report on corporate governance in a revised format within 15 days from the close of the quarter. The board must include its comments on the report, if any, and the new format of the report is more detailed
The report should contain information about all significant transactions with related parties
The Requirement for Business Responsibility and Sustainable Report (BRSR) Compliance:
From the financial year 2022-23, it is mandatory for the top 1000 listed entities (based on market capitalization) to comply with the BRSR requirement. Previously, the Business Responsibility Report Rules were applicable
Changes in Regulation 15(1A),16 (1)(d), 17(1C),26,31A with effect from 17 January 2023:
Definition of “Senior Management” under Regulation 16(1)(d):
The term “Senior Management” refers to the officers and staff of the listed company who belong to its central management team, but are not part of the Board of Directors. It also includes all members of the management team one level below the Chief Executive Officer or Managing Director or Whole Time Director or Manager (including Chief Executive Officer and Manager, if they are not part of the Board of Directors), as well as functional heads and executives in charge of specific departments, regardless of their job titles. Additionally, the Company Secretary and the Chief Financial Officer are also considered part of the Senior Management.
Change in regulation 17(1C) “Reappointment also requires approval of shareholders”:
Old
Shareholder approval was only required for the appointment of an individual to the Board of Directors or as a manager.
New
The appointment or reappointment of a person to the Board of Directors or as a manager requires the approval of shareholders. Simultaneously Regulation 17 (1C) following provision inserted – The Public Sector Company must ensure that the appointment or re-appointment of a person to the Board of Directors or as a Manager is approved by the shareholders at the next general meeting
There is an additional disclosure requirement in schedule V where it deals with regulations 34(3) and 53(f) pertaining to the Annual report under para 6 sub-para (10) clause n:
The listed entity should provide information on its material subsidiaries, which includes the date and place of incorporation, as well as the name and appointment date of the statutory auditors for such subsidiaries
“Key Managerial Personnel” instead of “Key Managerial person(s) :
Regulation 30(4) has been amended to include events that must be disclosed without considering the materiality guidelines, as specified under Part A point 16(ix). These events include the names of new promoters and Key Managerial Personnel, if any, along with their past experience in the relevant business or employment. In cases where the promoters are companies, the history of such companies and the names of natural persons in control should also be provided. It is noteworthy that the term “Key managerial person(s)” has been replaced with “Key Managerial Personnel”.
Minimum Public Shareholding Requirement under SCRR:
Listed entities’ efforts to increase their public holding and comply with Minimum Public Shareholding (MPS) requirements under securities contract regulation rules will be monitored by the Stock Exchange(s). If there is any non-compliance observed by the Stock Exchange(s) with the prescribed methods or conditions, it must be reported to SEBI on a quarterly basis.
Also Read: SEBI Circular No. SEBI/HO/DDHS/DDHS_Div1/P/CIR/2022/0000000006 Dated: January 07, 2022
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