ACS Deep Vaghela
Comparative Study on Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Equity Listing Agreement
Securities and Exchange Board of India (‘SEBI’) in terms of power conferred under SEBI Act, 1992 notified Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations 2015’) on 2nd September, 2015, whereby it tries to align the present Listing Agreement with the Companies Act, 2013 and they consolidate the scattered requirement under listing agreement for different securities under single piece of regulation.
This regulation will be effective from the 90th day of this notification in the Official Gazette i.e. 1st day of December, 2015. The Regulation 23(4) and 31A will be effective with immediate effect.
The Listing Regulations 2015 will apply to the following securities on recognized Stock Exchange(s):
- Specified securities listed on Main Board or SME Exchange or Institutional Trading Platform;
- Non-Convertible Debt Securities, Non-Convertible Redeemable Preference Shares, Perpetual Debt Instrument, Perpetual Non-Cumulative Preference Shares;
- Indian Depository Receipts;
- Securitised Debt Instruments;
- Units issued by Mutual Funds; and
- Any other securities as may be specified by SEBI.
According to Section 2 (52) of the Companies Act, 2013, listed company means a company which has any of its securities listed on any recognised stock exchange. This means that if a private limited company has its debt securities listed on any recognised stock exchange, then such company is under the ambit of listed company category for complying with the Companies Act, 2013 and rules and regulation made thereunder.
In Listing Regulations 2015, the term ‘listed entity’ is used instead of ‘listed company’ to cover the appropriate entities under the ambit of this regulation as some entities may or may not be the companies.
General Obligations for Listed Entities
The Chapter III of Listing Regulations 2015 provides the general obligation for compliance by the listed entities. The Promoters, Directors or Key Managerial Personnel of the listed entity should comply with the responsibilities as per regulation provided in this chapter and the regulations under this chapter is applied to all listed entities, except Regulations 6, 7, 8 and 10 is not applicable to the units issued by Mutual Funds which are listed on the recognised Stock Exchanges.
Like in Listing Agreement, the Regulation 6 defines the responsibility of Compliance Officer and there is no change in the requirement of Compliance Officer who should be a qualified Company Secretary coordinating with the Board, Stock Exchange(s) and Depositories for compliance with the rules and regulations of the Listing Regulations 2015.
The listed entity can appoint a share transfer agent or they can manage the share transfer facility in-house also. However, in case the total number of holders of securities exceeds one lakh, they either register themselves with SEBI as a Category II share transfer agent or appoint Registrar to an issue and share transfer agent registered with SEBI. As per Regulation 7(3), now the listed entity has to submit a compliance certificate to the Stock Exchange which is duly signed by the Compliance Officer and the authorized representative of the share transfer agent, if applicable, within one month of end of each half of the financial year, certifying the compliance of Regulation 7(2) ensuring the facility maintained for physical as well as electronic share transfer either in house or by the Registrar to an issue and share transfer agent registered with SEBI. However, the format for the certificate under Regulation 7(3) is yet to publish by SEBI.
If there is any change or appointment of a share transfer agent, the listed entity should intimate to the Stock Exchanges within seven days of entering into the agreement with the share transfer agent. The listed entity should enter into a tripartite agreement between the existing share transfer agent, new share transfer agent and the listed entity, in the manner as specified by SEBI from time to time, which shall be placed in the subsequent meeting of the Board of Directors of the listed entity.
There is a new provision for preservation of documents, whereby there are two categories, one the documents whose preservation shall be permanent in nature and second the documents whose preservation period is not less than eight years after completion of relevant transactions. These documents may also be kept in electronic mode and the Board of Directors of the listed entity is required to form the policy for preservation of documents in this regards.
Under Regulation 12, now the listed entity has to use electronic mode of payment, as approved by the Reserve Bank of India for dividends, interests, redemption or repayment of amounts. In case, the required bank details are not made available or where it is not possible for electronic payment, a ‘payable-at-par’ warrants / cheques may be issued to the investor and in case the amount payable exceeds one thousand five hundred rupees, then the warrants / cheques shall be sent by Speed Post. While printing warrants / cheques, the listed entity shall mandatorily print the bank account details of the investor on such payment instruments and in case where the bank details are not available, the listed entity shall mandatorily print the address of investor on such payment instructions.
Under Regulation 13, now the listed entity has to file with the recognised Stock Exchanges on a quarterly basis, within twenty one days from the end of quarter, a statement giving the number of Investor Complaints pending at the beginning of the quarter, those received during the quarter, disposed off during the quarter and those remaining unresolved at the end of the quarter. This requirement was there in Clause 41 of Listing Agreement and it was part of quarterly financial results, but in Listing Regulations 2015, it is a separate quarterly compliance. There is no specific format as of now for this purpose, but SEBI at later stage might come up with the format for this purpose.
Regulations v/s Clauses
The Chapter IV of the Listing Regulations 2015 details out the obligations which are applicable to the listed entities whose specified securities are listed on any recognised Stock Exchange(s).
Though the SEBI is in process of publishing some of the formats as applicable in this Listing Regulations 2015 and this is a step towards consolidation of existing listing agreement for different type of securities with an effort to realign with the present law, even though there are no such new contents or changes in the Listing Regulations 2015. I hereby provide the comparative study of Listing Regulations 2015 vis-à-vis Equity Listing Agreement.
♠ Regulation 15 (Applicability):
This provision applies to a listed entity whose specified securities are listed on any recognised Stock Exchange(s) either on the main board or on SME Exchange or on Institutional Trading Platform.
The Corporate Governance Regulations as specified from regulation 17 to regulation 27, regulation 46(2)(b) to 46(2)(i) and para C, D and E of Schedule V shall not apply to
i. the listed entity having paid up equity share capital not exceeding rupees ten crore and net worth not exceeding rupees twenty five crore, as on the last day of the previous financial year.
Once the regulation becomes applicable to a listed entity at a later date, such listed entity shall comply with the requirements of the regulations within six months from the date on which the provisions became applicable to the listed entity.
ii. the listed entity other than body corporate whose specified securities are listed on SME Exchange.
This regulation is in similar lines with the SEBI Circular No. CIR/CFD/POLICY CELL/7/2014 dated 15.09.2014 in terms of amendments to Clause 49 of the Equity Listing Agreement.
♠ Regulation 16 (Definitions):
This new regulation defines the terms control, independent director, material subsidiary and senior management for the purpose of Chapter IV. Furthermore, regulation 2 defines all the major terms of the Listing Regulations 2015 and in case any word or expression used in the regulation which are not defined, but defined in the Act or the Companies Act, 2013, the Securities Contracts (Regulation) Act, 1956, the Depositories Act, 1996 and/or the rules and regulations made thereunder shall have the same meaning as respectively assigned to them in such Acts or rules or regulations or any statutory modification or re-enactment thereto, as the case may be.
♠ Regulation 17 (Board of Directors):
This regulation corresponds to Clause 49II of the Listing Agreement. As per this regulation, now the compliance certificate shall be furnished by the Chief Executive Officer and Chief Financial Officer to the Board of Directors as specified in Part B of Schedule II.
The Minimum information which requires to be placed before the Board of Directors is mentioned in Part A of Schedule II (same as Annexure – X of the Listing Agreement). No other major changes were made to the Listing Agreement for this purpose.
♠ Regulation 18 (Audit Committee):
This regulation corresponds to Clause 49III of the Listing Agreement. In this regulation, now the Audit Committee should meet atleast four times in a year with not more than one hundred and twenty days shall elapse between two meetings (earlier it was not more than four months shall elapse between two meetings). The Audit Committee now at its discretion meets without the presence of any executives of the listed entity. Unlike Listing Agreement, now the power of the Audit Committee in the Listing Regulations 2015 was not specified and role of the Audit Committee and review of information by the Audit Committee was mentioned in Part C of Schedule II which is in similar line with Clause 49III (D) and (E) of the Listing Agreement.
♠ Regulation 19 (Nomination and Remuneration Committee):
This regulation corresponds to Clause 49IV of the Listing Agreement and no major changes were made to the Listing Agreement for this purpose.
♠ Regulation 20 (Stakeholders Relationship Committee):
This regulation corresponds to Clause 49VIIIE (4) of the Listing Agreement and no major changes were made to the Listing Agreement for this purpose.
♠ Regulation 21 (Risk Management Committee):
This regulation corresponds to Clause 49VI of the Listing Agreement and will specifically apply to the top 100 listed entities, determined on the basis of market capitalization, as at the end of the immediate previous financial year. Earlier under Listing Agreement, the company should lay down the procedures to inform Board members about the risk assessment and minimization procedures and the Board was responsible for framing, implementing and monitoring the risk management plan for the company. No other changes were made to the Listing Agreement for this purpose.
♠ Regulation 22 (Vigil Mechanism):
This regulation corresponds to Clause 49IIF of the Listing Agreement and it is in similar line of Listing Agreement only.
♠ Regulation 23 (Related Party Transactions):
This regulation corresponds to Clause 49VI of the Listing Agreement. The definition of related party in Listing Regulations 2015, continues to define related party as a synthesis of Companies Act, 2013 and Accounting Standard – 18. Now as per regulation 23(8), all the 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. Now the ordinary resolution will suffice the purpose of approval from shareholders instead of special resolution in Listing Agreement. Still the related parties are abstain from voting on such resolutions whether they are related party to that particular transaction or not. This point differs with Section 188 of the Companies Act, 2013 whereby the Ministry of Corporate Affairs clarified vide General Circular No. 30/2014 dated 17.07.2014, only the related party in the context of the contract or arrangement were abstained from voting.
♠ Regulation 24 (Corporate Governance requirements with respect to subsidiary of listed entity):
This regulation corresponds to Clause 49V of the Listing Agreement and it is in similar line with Listing Agreement.
♠ Regulation 25 (Obligations with respect to Independent Directors):
This regulation corresponds to Clause 49IIB of the Listing Agreement. In this regulation, the requirement of issuance of formal letter of appointment to Independent Directors was dispensed with, but in terms of Schedule IV of the Companies Act, 2013, the company has to appoint independent directors and the appointment should be formalised through a letter of appointment.
♠ Regulation 26 (Obligations with respect to Directors and Senior Management):
This regulation corresponds to Clause 49IID and E of the Listing Agreement and it is in similar line with Listing Agreement.
♠ Regulation 27 (Other Corporate Governance requirements):
This regulation corresponds to Clause 49X of the Listing Agreement, whereby the listed entity may comply with other non – mandatory requirements as mentioned in Part E of Schedule II. Now the listed entity is required to provide the details of all material transactions with related parties along with the quarterly compliance report on corporate governance as per format specified by SEBI within fifteen days from the close of the quarter.
SEBI vide Circular No. CIR/CFD/CMD/5/2015 dated 24.09.2015, provides the formats for Compliance Report on Corporate Governance. There are three reports, Annexure – I which need to be submit on quarterly basis, Annexure – II which need to be submit at the end of the financial year (for the whole of financial year) and Annexure – III which need to be submit within six months from end of financial year i.e. alongwith second quarter report.
♠ Regulation 28 (In-principle approval of recognized Stock Exchange(s)):
Listed entity before issuing the securities, should obtain in-principle approval from the recognised Stock Exchange(s). This requirement is not applicable for the securities issued pursuant to Scheme of Arrangement under Sections 230 – 234 and Section 66 of Companies Act, 2013 for which the listed entity has already obtained No Objection Letter from recognised stock exchange(s) under regulation 37.
♠ Regulation 29 (Prior Intimations):
The listed entity should intimate to the Stock Exchange(s) at least five days in advance excluding the date of the intimation and date of meeting (earlier it was seven days in Listing Agreement) of the Board Meeting for consideration of financial results viz. quarterly, half yearly or annual.
Now eleven days of advance intimation (excluding the date of the intimation and date of meeting) to the Stock Exchange(s) is required instead of twenty one days in Listing Agreement for consideration of any alteration in the form or nature of any of its securities that are listed on the Stock Exchange or in the rights or privileges of the holders thereof and in the date on which, the interest on debentures or bonds, or the redemption amount of redeemable shares or of debentures or bonds, shall be payable.
♠ Regulation 30 (Disclosure of events or information):
This regulation corresponds to Clause 36 of the Listing Agreement. Regulation 30 of the Listing Regulations 2015 states that the listed companies is required to make disclosures of such events or information which are considered to be ‘material’ by the Board of Directors of the listed entity. However, the Board also has an authority to authorize one or more Key Managerial Personnels for determining the materiality of an event or information. The criteria for determining the materiality of the event or information has been specified under regulation 30(4) of the Listing Regulations 2015. Clause 36 of the Listing Agreement specifically mentioned the events which were required to consider as material. In Listing Regulations 2015, the Board has the ultimate responsibility to determine the materiality of an event. The listed entities are required to frame a policy for determination of materiality duly approved by the Board of Directors.
Now the listed entity should inform the Stock Exchange(s) of all events or information as mentioned in Part A of Schedule III, as soon as reasonably possible but not later than 24 hours from the occurrence of an event or information. In case, the disclosure is made after 24 hours, then the listed entity should provide explanation for the delay in intimation. This time limit was not there in Listing Agreement. The events or information which will be disclosed to the Stock Exchange(s) under this regulation, should be hosted on the website of the listed entity for a minimum period of five year and thereafter as per archival policy of the listed entity. This means that now the listed entity will be required to frame a policy on website disclosure and archival of such disclosure. Some of the items as specified in Part A of Schedule III like dividends and/or cash bonuses recommended or declared or the decision to pass any dividend and the date on which dividend shall be paid/dispatched, any cancellation of dividend with reasons thereof, the decision on buyback of securities, the decision with respect to fund raising proposed to be undertaken, increase in capital by issue of bonus shares through capitalization including the date on which such bonus shares shall be credited/dispatched, reissue of forfeited shares or securities, or the issue of shares or securities held in reserve for future issue or the creation in any form or manner of new shares or securities or any other rights, privileges or benefits to subscribe to, short particulars of any other alterations of capital, including calls, financial results and decision on voluntary delisting by the listed entity from Stock Exchange(s) required to intimate within thirty minutes of the closure of the meeting instead of fifteen minutes as per Listing Agreement.
♠ Regulation 31 (Holding of specified securities and shareholding pattern):
This regulation corresponds to Clause 35 of the Listing Agreement and it is in similar line with Listing Agreement. Once again, the SEBI continuously try to ensure that the hundred percent of shareholding of promoter(s) and promoter group is in dematerialized form to have a proper watch on it. The SEBI is yet to come out with the format for disclosing the quarterly Shareholding Pattern to the Stock Exchange(s).
♠ Regulation 31A (Disclosure of Class of shareholders and Conditions for Reclassification):
This new regulation provides conditions for reclassification of the status of the shareholders. Regulations 31A(5), (6) and (7) provides the conditions for replacing the previous promoter and reclassification of existing promoters as public shareholders.
♠ Regulation 32 (Statement of deviation(s) or variation(s)):
This regulation corresponds to Clause 43 and 43A of the Listing Agreement. The regulation has dropped the word ‘material’ deviation, which was there in Listing Agreement and the explanation for deviations under regulation 32(1) is to be provided in the Directors’ report. In Listing Agreement, the deviations to be provided for every year of projection as mentioned in the prospectus/letter of offer/objects while this regulation states that the statement of deviation has to be stated till such time proceeds of the issue have been fully utilized or the purpose for which these proceeds were raised has been achieved.
♠ Regulation 33 (Financial results):
This regulation corresponds to Clause 41 of the Listing Agreement. As per this regulation, now irrespective of whether the subsidiary of the listed entity is listed or not, they need to submit Form A (for audit report with unmodified opinion) or Form B (for audit report with modified opinion) alongwith Form A or Form B with audit report for standalone financial results for the financial year, within sixty days from the end of the financial year. In case of submission of Form B (for audit report with modified opinion), the audit report will be review by Qualified Audit Report Review Committee who will analyze the case as referred by the Stock Exchange(s).
After analyzing the modified opinion(s) in audit reports, the Review Committee may recommend rectification of such modified opinion in the subsequent financial year in case the impact of modified opinion is not significant. But if the Review Committee is of the view that the modified opinion is significant and the explanation given by the listed entity concerned in Form B is unsatisfactory, the case may be referred to the Financial Reporting Review Board of Institute of Chartered Accountants of India, for their opinion.
The listed entity now required to state time of conclusion of Board Meeting in the minutes, and the listed entity has to submit the financial results within 30 minutes from the conclusion of the Board Meeting.
In the Listing Agreement, the variation of 10% was served as an ideal tool to assess the accuracy of unaudited financial results, which was left out in this regulation.
The SEBI is yet to publish the formats for the financial results for the purpose of this regulation.
♠ Regulation 34 (Annual Report):
Now the listed entity required to send the Annual Report to the Stock Exchange(s) within twenty one working days of its adoption by the members at the Annual General Meeting unlike in Listing Agreement, where the Annual Report has to disseminate to the Stock Exchange(s) as soon as they are issued. Even the requirement for submission of six copies has also been done away. The Schedule V of the Listing Regulations 2015 describes the disclosures requirement in the Annual Report which is in line with Listing Agreement itself.
♠ Regulation 35 (Annual Information Memorandum):
The listed entity shall submit to the Stock Exchange(s) an Annual Information Memorandum as specified by the SEBI from time to time.
♠ Regulation 36 (Documents & Information to shareholders):
This regulation corresponds to Clause 32 of the Listing Agreement and it is in similar line with Listing Agreement.
♠ Regulation 37 (Draft Scheme of Arrangement & Scheme of Arrangement):
This regulation corresponds to Clause 24 of the Listing Agreement and it is in similar line with Listing Agreement.
♠ Regulation 38 (Minimum Public Shareholding):
This regulation corresponds to Clause 40A of the Listing Agreement and it is in similar line with Listing Agreement.
♠ Regulation 39 (Issuance of Certificates or Receipts/Letters/Advices for securities and dealing with unclaimed securities):
The listed entity shall submit the information regarding the loss of share certificate and issue of the duplicate certificates, to the Stock Exchange(s) within two days of its getting information. The whole procedural requirements for dealing with securities issued pursuant to the public issue or any other issues which remain unclaimed or are lying in the escrow account, is specified in the Schedule VI of the Listing Regulations 2015.
♠ Regulation 40 (Transfer or transmission or transposition of securities):
This regulation corresponds to Clause 6, 7, 8, 9, 10 and 11 of the Listing Agreement and it is in similar line with Listing Agreement. This time the SEBI has come out with the procedural aspects for dealing with transfer, transmission or transposition of securities as specified in the Schedule VII of the Listing Regulations 2015.
♠ Regulation 41 (Other provisions relating to securities):
This regulation is in similar line with the Listing Agreement.
♠ Regulation 42 (Record Date or Date of closure of transfer books):
This regulation corresponds to Clause 16 of the Listing Agreement and it is in similar line with Listing Agreement.
♠ Regulation 43 (Dividends):This regulation corresponds to Clause 20A of the Listing Agreement and it is in similar line with Listing Agreement.
♠ Regulation 44 (Voting by shareholders):
This regulation corresponds to Clause 35B of the Listing Agreement and it is in similar line with Listing Agreement. However, the formats for the voting results are yet to be published by SEBI.
♠ Regulation 45 (Change in name of the listed entity):
This regulation corresponds to Clause 32 of the Listing Agreement and it is in similar line with Listing Agreement.
♠ Regulation 46 (Website):
Now the regulations also requires to disclose the composition of various committees of Board of Directors, contact information of the designated officials of the listed entity who are responsible for assisting and handling investor grievances and notice of meeting of the Board of Directors where financial results shall be discussed.
♠ Regulation 47 (Advertisements in Newspapers):
This regulation is in similar line with Listing Agreement.
♠ Regulation 48 (Accounting Standards):
Now the listed entity shall comply with all the applicable and notified Accounting Standards from time to time.
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