Regulation 24A of Securities Exchange Board of India (Listing obligation and disclosure requirement) regulation 2015 (‘SEBI LODR’) mandates listed companies to whom corporate governance provisions are applicable to submit Annual Secretarial Compliance Report (‘ASCR’) within 60 days of the end of the financial year to stock exchanges where shares of company are listed. The requirement to submit ASCR was brought vide SEBI circular dt: February 8, 2019 on the recommendations of Committee on Corporate Governance formed by SEBI on June 2, 2017, under the Chairmanship of Shri Uday Kotak, Executive Vice Chairman and Managing Director of Kotak Mahindra Bank, to review existing corporate governance principles. In this article we are going to review the ASCR submitted by the top 100 listed companies providing analysis of observations made in these reports.
Introduction:
Out of the 100 ASCR, qualified report was 34 and 66 were not qualified by practicing company secretaries. ‘Qualified Reports’ are reports where non-compliances with various regulations applicable to listed companies are identified. Tabular presentation of the total ASCR reports tracked and qualifications analysis:
Sr No | Type of Qualification | Number of qualification reports |
01 | Regulation 17 of SEBI LODR:
Improper composition of board of directors |
10 |
02 | Regulation 30 read with schedule III:
Delay in disclosure /submission of events/information as per Schedule III of SEBI LODR to stock exchange thereby violating regulation 30 of SEBI LODR. |
12 |
03 | Regulation 18(2) of SEBI LODR: Gap between audit committee meetings exceeding 120 days violating regulation 18 (2) of SEBI LODR |
01 |
04 | Regulation 19 of SEBI LODR:
Non composition of nomination and remuneration committee. |
01 |
05 | Non-compliances with respect to depository participants activities violating SEBI (Depositories & Participants) regulation 2018. | 02 |
06 | Regulation 17(1A) of SEBI LODR.
Delayed approval for appointment or continuation of non-executive director who attained the age of seventy-five years. |
02 |
07 | Other qualifications included such as: adjudication order passed by SEBI, fine imposed by the regulatory authorities, certain material advisory issued by the relevant authorities, non-compliances observed by SEBI in the listed entities etc. | 06 |
08 | Regulation 23: Related Party Transactions
Inadequate disclosures in the explanatory statement for approval of material related party transactions. |
01 |
Analysis
It is seen that major qualification pertained to non-compliance with requirement pertaining to composition of board of directors for various quarters, and delayed disclosures pertaining to regulation 30 of SEBI LODR. In few cases it was also non-compliances were also observed with respect to gap between two audit committee meetings was more than 120 days, not constituting nomination and remuneration committee, not having women independent director, non-disclosure of information relating to litigation pursuant to SEBI LODR, delayed approval for appointment or continuation of non-executive directors who had attained age of seventy-five years, and delay in appointment of compliance officer.
Technical non-compliance was also observed pertaining to delay in intimation of record date as per regulation 60 of SEBI LODR, delay in submission of disclosures of related party transactions, delay of one minute fifty- eight seconds in uploading the voting results on BSE online portal, and delayed submission of intimation w.r.t schedule of analysts or institutional investors meet.
Consequence of Observations in ASCR:
Observations in ASCR may lead to a range of consequences including regulatory fines, reputational damage, loss of investor confidence, and operational inefficiencies. One such practical example was seen in case of SEBI adjudication order in the matter of SecureKloud Technologies Limited dt: September 14, 2022[i] wherein Practicing Company Secretary M/s. P. Sriram and Associates had made observations in their ASCR for the financial year 2018-2019, citing that company had not followed due process for approval of related party transaction, independent directors in the company not fulfilling the criteria of independence, non -consolidation of accounts of certain companies and other non-compliances in terms of disclosures to be made to the committees and the board of directors as contemplated under SEBI LODR. Based on findings of examination conducted by SEBI and after conducting investigation various charges were established and penalty was levied on the company along with the two independent directors and the company secretary. The observations in the ASCR pertaining to delayed disclosures highlight inefficiencies in the company’s reporting processes, prompting a review and overhaul of internal systems. Bombay Stock Exchange [‘BSE’] and National Stock Exchange [‘NSE’] vide their circulars dt: January 25, 2023[ii] had stated that if a listed company fails to have a structured digital database as per Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 [‘SEBI PIT’] then the name of the compliance officer as per SEBI PIT shall be mentioned on the ‘Get Quote’ on the page of BSE and NSE where share price of the listed company is quoted. To ensure compliance with this regulation BSE and NSE have been relying on the ASCR submitted by listed companies. If ASCR mentions about non-maintenance of SDD then BSE and NSE highlight on ‘Get Quote’ that listed company is not maintaining SDD and mention name of compliance officer.
Technical qualifications, including delays in necessary disclosures and approvals, highlight operational inefficiencies that could impact overall governance. Legal qualifications, such as non-compliance with board composition requirements and delays in key committee meetings, can attract regulatory actions, damage company reputations, and undermine stakeholder confidence.
Conclusion
ASCR serves as a critical tool in ensuring that listed companies in India adhere to stringent governance and regulatory standards. To mitigate risks of qualifications, listed companies have a major role to play in prioritizing timely and accurate compliance with all regulatory mandates. By doing so, companies not only avoid regulatory penalties but also enhance their reputation for transparency and governance, fostering greater trust among investors and stakeholders.
This article is written by Ms. Ruchira Pawase – Research Associate – [email protected]
[i] https://www.sebi.gov.in/enforcement/orders/sep-2022/adjudication-order-in-the-matter-of-securekloud-technologies-limited_62964.html
[ii] https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20230125-33
https://nsearchives.nseindia.com/web/sites/default/files/inline-files/NSE_Circular_25012023.pdf