Key Highlights of Recent Amendments in SEBI (LODR) Regulations 2015 Vide Notification of SEBI (LODR) (Second Amendment) Regulations, 2021 Effective From 6th May, 2021
1. APPLICABILITY OF THE REGULATIONS
The provisions of SEBI LODR regulations which become applicable to listed entities on the basis of market capitalisation criteria shall continue to apply to such entities even if they fall below such thresholds. [Newly inserted Regulation 3(2)].
For e.g.: The top 100 listed entities by market capitalization, determined as on March 31st of every financial year, shall hold their annual general meetings within a period of five months from the date of closing of the financial year.
Now due to the above amendment if the listed Company fails to make in Top 100 list due to falling below the thresholds, still, it is mandatory for the Company to hold their annual general meetings within a period of five months from the date of closing of the financial year.
2. COMPLIANCE CERTIFICATE W.R.T. SHARE TRANSFER FACILITY
Compliance Certificate by signed by Compliance officer and RTA is required to be filed once in a F.Y. within 30 days of the end of F.Y. (Earlier there was a requirement for filing of said certificate on half yearly basis) [Amendment in Reg 7(3)]
3. APPLICABILITY OF CHAPTER IV I.E. OBLIGATIONS OF LISTED ENTITY WHICH HAS LISTED ITS SPECIFIED SECURITIES
Once the Corporate Governance provisions become applicable to a listed entity because of crossing the threshold of paid up capital of Rupees ten crore and net worth of Rs, twenty five crore , then such provisions shall remain applicable to the Listed Company until for a period of 3 consecutive financial years. [Newly inserted proviso in Regulation 15(2)(a)]
4. FUNCTIONS OF AUDIT COMMITTEE
Some roles has been added in the functions of Audit committee i.e. to consider and comment on rationale, cost-benefits and impact of schemes involving merger, demerger, amalgamation etc., on the listed entity and its shareholders (This is not a new requirement as the said roles was already provided in SEBI Circular dated November 03, 2020. This amendment came to aligns the provision of said circular with the requirements SEBI LODR Regulations. [Reg.18 r/w schedule II(c)]
5. RISK MANAGEMENT COMMITTEE (STRENGTHENING THE ROLE OF RISK MANAGEMENT COMMITTEE)
i. The Risk Management Committee (“RMC”) shall be required to have minimum three members with majority of them being members of the board of directors, including at least one independent director and in case of a listed entity having outstanding SR equity shares, at least two thirds of the Risk Management Committee shall comprise independent directors. (Earlier there was no requirement of minimum no. of members and independent Director in the RMC). [Amendment in Reg 21(2)]
ii. Now the RMC shall meet twice in a year. (Earlier there was a requirement of only one meeting in a year). [Amendment in Reg 21(3A)].
iii. The quorum for a meeting of the RMC shall be either two members or one third of the members of the committee, whichever is higher, including at least one member of the board of directors in attendance. [Newly inserted Regulation 21(3B)].
iv. Gap between 2 meetings of RMC shall not exceed 180 days (Earlier there was no requirement of minimum gap). [Newly inserted Regulation 21(3C)].
v. The new proviso has been added to fix the role and responsibilities of the Risk Management Committee which shall mandatorily include the performance of functions specified in Part D of Schedule II. [Newly inserted proviso to Reg 21(4)]
vi. Top 500 listed companies shall form RMC. (Earlier it was applicable to top 1000 listed companies). [Amendment in Reg 21(5)]
vii. Contents of Risk Management Policy:
a) A framework for identification of internal and external risks specifically faced by the listed entity, in particular including financial, operational, sectoral, sustainability (particularly, ESG related risks), information, cyber security risks or any other risk as may be determined by the Committee.
b) Measures for risk mitigation including systems and processes for internal control of identified risks.
c) Business continuity plan Actions required to be taken by the Companies within 6 months from the date on which such regulations become applicable to listed entities as prescribed under proviso to Reg 15(2)(a)
6. CORPORATE GOVERNANCE REQUIREMENTS WITH RESPECT TO SUBSIDIARY OF LISTED ENTITY.
A Listed entity shall not dispose of shares in its material subsidiary resulting in shareholding falling to 50% without passing Special Resolution. Earlier it was “less than 50%” [Amendment in Reg 24(5)]
7. SECRETARIAL AUDIT
i. Secretarial Audit Report of Material unlisted Subsidiaries Companies is required to be annexed with the Annual Report of Listed Company. (Earlier there was no specific clarity in the provisions) [Amendment in Reg 24A]
ii. The listed Company shall submit a secretarial compliance report to the stock exchanges, within sixty days from end of each financial year (This sub regulation has been added, just to incorporating the provisions of SEBI Circular dated February 8 2019, in SEBI LODR, Regulations. [Newly inserted Reg 24A(2)]
8. OBLIGATIONS WITH RESPECT TO INDEPENDENT DIRECTORS
The independent directors of the listed entity shall hold at least one meeting in a financial year. (Earlier there was requirement for holding meeting in a year instead of financial year) [Amendment in Reg 25]
9. Following provision in Regulation 26(4) has been deleted:
“Non-executive directors shall disclose their shareholding, held either by them or on a beneficial basis for any other persons in the listed entity in which they are proposed to be appointed as directors, in the notice to the general meeting called for appointment of such director.
Note: The above clause has been deleted due to duplicity of information as the same information is already covered in Regulation 36(3).
10. QUARTERLY CORPORATE GOVERNANCE REPORT
The listed entity shall submit a quarterly compliance report on corporate governance in to the recognised stock exchange(s) within 21 days from the close of the quarter. (Earlier the time limit was 15 days from the end of the quarter) [Amendment in Reg 27(2)(a]
11. PRIOR INTIMATION OF BOARD MEETING for considering the proposal of declaration of bonus securities under Reg. 29(f) to be given to STX irrespective of whether the same is a part of the agenda papers of the BM. [Amendment in Reg 29(1)f)]
12. DISCLOSURE OF EVENTS OR INFORMATION
a) Disclosure with respect to events specified in sub para 4 of Para A of Part A of Schedule III shall be made “within the timelines specified therein”. (earlier, the words “thirty minutes of the conclusion of the board meeting” was mentioned. This amendment came only to provide clarity in language in the provision. There will be no impact on compliance due to this amendment. [Amendment in 2nd proviso to Reg 30(6)]
b) Intimation of outcome of Board meetings (Reg. 30 (6) and schedule III Part A): In cases where the board meeting in which financial results are considered continue for more than 1 day, financial results must be disclosed to the STX within 30 minutes of end of the meeting for the day on which the same have been considered.
13. CONDITIONS FOR RE-CLASSIFICATION OF ANY PERSON AS PROMOTER / PUBLIC
[Amendment in Reg 31A((3)(a)]
i. Reduction in Time Gap: The time gap between the Board Meeting and the Shareholders meeting for the purpose of consideration of reclassification request should be minimum of 1 month and maximum of 3 months;
ii. Approval of Shareholders exempted where:
Scope of exemption widened and Order of other regulator is also included for reclassification without following the conditions mentioned in the Regulation. [Newly Inserted Reg 31A(10)]
In case of reclassification pursuant to an open offer or a scheme of arrangement exemptions from the following provisions have been provided:
Clarification note: Exemption is available subject to the condition that the intent of the erstwhile promoter(s) to reclassify has been disclosed in the letter of offer or scheme of arrangement
14. STATEMENT OF DEVIATION(S) OR VARIATION(S)
Report from monitoring agency to be submitted to STX within 45 days from the end of each quarter (This is a new requirement as per amendment). [Amendment in Reg 32(6)]
15. FINANCIAL RESULTS
Earlier, the statement on Impact of Audit Qualification was required to be reviewed by the STX. Now this requirement has now been done away with. [Amendment in Reg 33(6) and 52(3)]
16. ANNUAL REPORT
Regulation 34(2)(f) mandates top one 1000 listed entities based on market capitalization to submit a Business responsibility report. The said requirement shall be discontinued after F.Y. 2021-22 and thereafter, with effect from the F.Y. 2022–23, the top one thousand listed entities based on market capitalization shall submit a business responsibility and sustainability report. However, even during the financial year 2021–22, the top one thousand listed entities may voluntarily submit a business responsibility and sustainability report in place of the mandatory business responsibility report. [Amendment in Reg 34(2)(f)]
17. DOCUMENTS & INFORMATION TO SHAREHOLDERS
In case of the appointment of a new director or re-appointment of a director, shareholding of non-executive directors will also include the shareholding as a beneficial owner, which must be provided to the shareholders along with other prescribed information.(This is not a new requirement as Reg 26(4) which provided for the same has been omitted by these amendments and inserted under this Regulation [Amendment in Reg 36(3)(e)].
18. DRAFT SCHEME OF ARRANGEMENT & SCHEME OF ARRANGEMENT
The requirement of obtaining observation letter from SE has been done away with in respect of Draft Scheme of Arrangement & Scheme of Arrangement. Earlier, the procedure was to issue No objection Letter to such schemes that are in compliance with securities laws and Observation Letter to such schemes which are non-compliant with securities laws. Now, the requirement of issuing Observation Letter to schemes non-compliant with securities laws has been dispensed with. [Amendment in Reg 37].
19. CERTIFICATE ON TRANSFER OR TRANSMISSION OR TRANSPOSITION OF SECURITIES
The timeline for submission of Compliance Certificate for Transfer or transmission or transposition of securities under Reg 40(9) with the Stock Exchange has been changed from half yearly to yearly basis which will be required to be filed within thirty days from the end of the financial year. [Amendment in Reg 40(9)].
20. DIVIDEND DISTRIBUTION POLICY.
The 1000 listed entities based on market capitalization (calculated as on March 31 of every financial year) shall formulate a dividend distribution policy which shall be disclosed on the website of the listed entity and a web-link shall also be provided in their annual reports. (Earlier it was applicable on top 500 listed companies and Requirement of providing the Dividend Distribution policy in Annual Report has been done away with, instead, the web link of the policy shall be provided in Annual Report.) [Amendment in Reg 43A].
21. SUBMISSION OF VOTING RESULTS
The listed entity shall submit to the stock exchange, within two working days of conclusion of its General Meeting, details regarding the voting results. (Earlier, the timeline was 48 hrs). [Amendment in Reg 44(3)].
22. CHANGE IN NAME OF THE LISTED ENTITY
Requirement of seeking Stock Exchange approval for change of name has been done away with. Now, the Compliance Certificate from Chartered Accountant shall be attached with Explanatory statement of the notice seeking shareholder approval for change of name.[Amendment in Reg 45(3)].
23. WEBSITE DISCLOSURES
The Following disclosures shall be made to Stock Exchange and also be placed on the website of the Company (Amendment in Reg 46)]:
The requirement for disclosure(s) of audio/video recordings and transcript shall be voluntary with effect from April 01, 2021 and mandatory with effect from April 01, 2022.
Additional disclosures to be placed on the website of the company
i. a listed entity, which has a subsidiary incorporated outside India—
Imp Note: The above amendment brings the above disclosures under the ambit of the penalties for non-compliance with norms pertaining to functional website as given under SEBI Circular dated January 22, 2020. In the absence of such inclusion, penalties on non-compliance with the same couldn’t be levied by the STX. Therefore, the Website of the Companies need to be updated with the additional disclosures as required under Reg. 46
24. ADVERTISEMENTS IN NEWSPAPERS
Now the Listed Entities are not required to publish the following events in newspaper (Amendment in Regulation 47):
a) Various references to SEBI ICDR 2009 its relevant provisions has been substituted with SEBI ICDR 2018.
b) Substitution of Institutional trading platform with the Innovators Growth Platform notified under Chapter X of ICDR 2018.
c) Interchangeability in Vigil Mechanism and whistle blower policy more focus on documenting the process.
d) Harmonization of SEBI (LODR) Regulations, 2015 with the provisions of Companies Act, 2013.
e) Reiteration of Gender neutrality by adding ‘her’ along with ‘his’.
f) Due to amendment in various Regulations, the disclosure requirements in Annual Corporate governance Report have also widened.
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