Introduction:
Securities Exchange Board of India (SEBI) vide its notification dated May 05, 2021 made amendments in SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2021, which would be known as SEBI (LODR) Second Amendment Regulations, 2021 with effect from its publication in official gazette on May 06, 2021.
Main objective of amendment:
Amended regulation were introduced for the below-mentioned main objectives:
- Consolidation of various SEBI circulars;
- Alignment with the provisions of the Companies Act, 2013;
- Easing the compliance burden on listed companies,
- Improvement in Business Responsibility and sustainably report to bring transparency through disclosure of Material Environmental, Social and Governance (ESG).
- Introducing role and effectiveness of Risk Management Committee.
Classification of SEBI (LODR) Second Amendment Regulations, 2021:
To make it easy to understand, we have classified the amendments into 6 major areas, which are as under:
Amendments are summarized in the following table:
| TITLE | REGULATION NO. | EXISTING PROVISION | AMENDMENTS |
| Applicability of LODR | Insertion of Regulation 3(2) | No provision | If any regulation is applicable on the listed company based on market capitalization criteria, that regulation shall continue to apply even after falling the threshold limit |
| Compliance certificate given by Share Transfer Agent | Amendment in Regulation 7(3) | Listed entity shall submit a compliance certificate to the exchange, duly signed by both the compliance officer of the listed entity and the authorized representative of the share transfer agent, wherever applicable, within one month of end of each half of the financial year |
One month shall be substituted with 30 days of end of the financial year |
| Corporate Governance | Insertion in Regulation 15(a) |
No provision | Once the Regulations 17 to 27, clauses (b) to (i) and (t) of sub-regulation (2) of regulation 46 and para C, D and E of Schedule V become applicable to a listed entity, they shall continue to remain applicable till such time the equity share capital or the net-worth of such entity reduces and remains below the specified threshold for a period of three consecutive financial years |
| Risk management committee | Regulation 21 (2) substituted | The majority of members of Risk Management Committee shall consist of members of the board of directors and in case of a listed entity having outstanding SR equity shares, at least two thirds of the Risk Management Committee shall comprise of independent directors. |
The Risk Management Committee shall 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. |
| Risk management committee | Regulations 21 (3A) | Meeting of Risk management committee shall be held once in a year | Meeting of Risk management committee shall be held twice in a financial year |
| Risk management committee | Regulations 21 (3B) and (3C) |
No provision | (3B) The quorum for a meeting of the Risk Management Committee shall be either two members or onethird of the members of thecommittee, whichever is higher,including at least one member of the board of directors in attendance.(3C) The meetings of the risk management committee shall be conducted in such a manner that on a continuous basis not more than one hundred and eighty days shall elapse between any two consecutive meetings. |
| Applicability of Risk Management Committee | Regulation 21
(5) |
Constitution of Risk Management Committee would be applicable to top 500 listed companies | Constitution of Risk Management Committee would be applicable to top 1,000 listed companies |
| Power of Risk Management Committee | Regulation 21(6) | No provision | The Risk Management Committee shall have powers to seek information from any employee, obtain outside legal or other professional advice and secure attendance of outsiders with relevant expertise, if it considers necessary |
| Shareholding in material subsidiary | Regulation 24(5) | A listed entity shall not dispose of shares in its material subsidiary resulting in reduction of its shareholding (either on its own or together with other subsidiaries) to less than or equal to fifty percent |
A listed entity shall not dispose of shares in its material subsidiary resulting in reduction of its shareholding (either on its own or together with other subsidiaries) to less than or equal to fifty percent |
| Secretarial Audit |
Regulation 24 (A) | The title of the regulation is Secretarial Audit. | The title of the regulation changed to Secretarial Audit and Secretarial Compliance Report.
Regulation 24 (a) (i) inserted “Every listed entity and its material unlisted subsidiaries incorporated in India shall undertake secretarial audit and shall annex a secretarial audit report given by a company secretary in practice, in such form as specified, with the annual report of the listed entity.” Regulation 24 (a) (ii) inserted “Every listed entity shall submit a secretarial compliance report in such form as specified, to stock exchanges, within sixty days from end of each financial year” |
| Meeting of Independent directors | Regulation 25 (3) | Once in a year | Once in a Financial Year. |
| Vacancy of Independent | Regulation 25(6) | Vacancy of independent director shall be filled by listed | Vacancy of independent director shall be filled by listed entity within |
| directors | entity at the earliest but not later than the immediate next meeting of the board of directors or three months from the date of such vacancy, whichever is later. | three months from the date of such vacancy. | |
| Shareholding of Non-executive directors | Regulation 26 (4) | 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. | This clause has been omitted |
| Corporate Governance Report | Regulation 27 (2) | Corporate governance report shall be submitted by the Board from time to time to the recognized stock exchange(s) within fifteen days from close of the quarter. | Corporate governance report shall be submitted by the Board from time to time to the recognized stock exchange(s) within Twenty-One days from end of each quarter. |
| Prior intimation to stock exchange for issue of bonus securities | Regulation 29 (1) (f) | The proposal for declaration of bonus securities where such proposal is communicated to the board of directors of the listed entity as part of the agenda papers |
The proposal for declaration of bonus securities where such proposal is communicated to the board of directors of the listed entity even not a part of the agenda papers. |
| Disclosure of event or information | Regulation 30 (6) | Disclosure required to stock exchange for event specified in schedule III (A) (a) (4) shall be made within 30 minutes. | Disclosure required to stock exchange for event specified in schedule III (A) (a) (4) shall be made within timeline specified therein. |
| Disclosure of Class of shareholders and Conditions for Reclassification | Regulation 31 (A) (3) | The gap between meeting of shareholders and board of directors for approval of Reclassification of status of a promoter shall be between 3 months to 6 months |
The gap between meeting of shareholders and board of directors for approval of Reclassification of status of a promoter shall be between 1 month to 3 months |
| Disclosure of Class of shareholders and Conditions for Reclassi-fication | Regulation 31 (10) | No provision | In case of reclassification pursuant to an open offer or a scheme of arrangement, the provisions of clause (a) of sub-regulation (3) and clauses (a) and (b) of sub-regulation (8) of this regulation shall not apply if the intent of the erstwhile promoter(s) to reclassify has been disclosed in the letter of offer or scheme of arrangement:
Provided that the provisions of |
| Statement of deviation(s) or variation(s) | Regulation 32 (6) | If a listed entity appoints and monitoring agency to monitor proceeding of right issue then such entity shall intimate to stock exchange about any comments or report received from the monitoring agency. | If a listed entity appoints and monitoring agency to monitor proceeding of right issue then such entity shall intimate to stock exchange about any comments or report received from the monitoring agency within Forty-Five days. |
| Financial results |
Regulation 33 (6) | The Statement on Impact of Audit Qualifications (for audit report with modified opinion) and the accompanying annual audit report submitted in terms of clause (d) of sub-regulation (3) shall be reviewed by the stock exchange(s) | This clause has been omitted |
| Business responsibility and sustainably report | Regulation 34(2) (f) | Top 500 listed company will include Business responsibility report in its Annual report | Top 1,000 listed company will include Business responsibility report in its Annual report for the FY 2021-2022 and for the FY 2022-2023 onwards Business responsibility and sustainably report would be a part of annual report. |
| Documents & Information to shareholders | Regulation 36 (3) (e ) | In case appointment of Non- executive director, shareholding of Non- executive director must be provided to shareholder. | In case appointment of Non- executive director, shareholding of Non- executive director along with shareholding as a beneficial owner must be provided to shareholder. |
| Transfer or transmission or transposition of securities | Regulation 40 (9) | In case transfer of transmission of shares, the share transfer agent shall produce a certificate from PCS within one month on half yearly basis | In case transfer of transmission of shares, the share transfer agent shall produce a certificate from PCS within 30 days on annual basis |
| Dividend distribution policy |
Regulation 43A |
A listed company shall disclose about formulation and implementation of dividend distribution policy on website and annual report. | A listed company shall disclose about formulation and implementation of dividend distribution policy on website and a web link shall also be a part of annual report. |
| Meetings of shareholders and voting | Regulation 44 (3) | Details regarding the voting result in AGM shall be submitted to stock exchange within forty-eight hours from the conclusion of AGM. |
Details regarding the voting result in AGM shall be submitted to stock exchange within Two working days from the conclusion of AGM. |
| Change in name of the listed entity | Regulation 45 (3) | After confirmation of Name from ROC with regards to name change of listed company, the company have to take approval from stock exchange before filing. | After confirmation of Name from ROC with regards to name change of listed company, the company have to take approval from share-holders before filing |
| Website disclosure- Financials of subsidiary company | Regulation 46 (2) (s) | Financial statement of every subsidiary company has to be uploaded on website 21 days before the date of AGM | A new proviso has entered in Regulation 46 (2) (s) Provided that a listed entity, which has a subsidiary incorporated outside India—
(a) where such subsidiary is statutorily required to prepare consolidated financial statement under any law of the country of its incorporation, the requirement of this proviso shall be met if consolidated financial statement of such subsidiary is placed on the website of the listed entity; (b) where such subsidiary is not required to get its financial Indian listed entity may place such unaudited financial statement on its website and where such financial statement is in a language other than English, a translated copy of the financial statement in English shall also be placed on the website. |
| Website disclosure | Regulation 46 (t) to (z) | No provision |
|
| Advertisements in Newspapers | Regulation 47 (1) (a) and (c) | The following information shall be published in newspaper
|
This requirement is omitted. |
| Financial result | Regulation 52 (3) | The Statement on Impact of Audit Qualifications and the accompanying annual audit report submitted shall be reviewed by the stock exchange | This regulation is omitted. |
| Role of Audit Committee | Schedule II part (c) Para (A) clause 22 |
No provision | Audit committee shall consider and comment on rationale, cost-benefits and impact of schemes involving merger, demerger, amalgamation etc., on the listed entity and its shareholders |
| Risk management committee | Schedule II part (d) (c) | No provision | Roles of risk management committee has inserted |
| Disclosures of Events or Information | Schedule III part (A) Para (A) clause 4 sub-clause (i) |
No provision | In case of board meetings being held for more than one day, the financial results shall be disclosed within thirty minutes of end of the meeting for the day on which it has been considered |
Conclusion:
The Amendment Regulations are being enforced to align the Companies Act, 2013 with the same. Furthermore, over riding powers have been given to the Regulations which will require the listed entities formed under special statute to comply with the LODR Regulations in entirety.
With practical point of view these regulations are very effective. Uniformity in timelines and relaxation in certain disclosure requirements will encourage ease of doing business, and the coverage of certain provisions extended to listed entities based on market capitalization will have a remarkable impact on the corporate governance of listed entities.
Disclaimer:
The entire contents of this article have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, we assume no responsibility. Therefore, Users of this information are expected to refer to the relevant existing provisions of applicable Laws. We assume no responsibility for the consequences of use of such information. In no event we shall be liable for any direct, indirect, special, or incidental damage resulting from, arising out of or in connection with the use of the information. This is only a knowledge sharing initiative and author does not intend to solicit any business or profession.
Bibliography:
https://erience.in/
http://ayushij.com/2021/05/sebi-lodr-second-amendment-regulations-2021-2/
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Mehul Solanki is a commerce and law graduate having more than four years of working experience in company law compliances, setting-up companies, compliances of listed companies and not-for-profit companies. He is currently Research Associate & Start-up Consultant at Jaya Sharma & Associates and has authored various articles on corporate and securities law related topics which have been published on various websites, blogs and professional magazines including Compliance Calendar, Taxguru, Legal Service India and journal of ICSI etc.
Menakshi Bajaj is a commerce postgraduate and an aspiring Company Secretary currently undergoing her long-term training at Jaya Sharma and Associates, taking interest in understanding and interpreting complexities of the prevailing law and has panned down various articles on corporate law related topics which have been published on various websites namely: Compliance Calendar, Taxguru etc.
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