Overview of recent amendments in SEBI (LODR) Regulations, 2023

Introduction: The Securities and Exchange Board of India (SEBI) has introduced several amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations through a series of updates in 2023. These amendments, encompassing the Second to the Fifth Amendments, are aimed at reinforcing the pillars of corporate governance – transparency, disclosures, and accountability. By focusing on these core areas, SEBI aims to better accommodate the interests of retail shareholders, who are increasingly participating in the securities market. These changes are designed to promote timely and effective disclosures by listed entities, thereby fostering a more robust and transparent regulatory environment.

The Securities and Exchange Board of India (SEBI) has introduced various amendment in the SEBI (Listing Obligations and Disclosure Requirements) by notification  (i) the SEBI (Listing Obligations and Disclosure Requirements) (Second Amendment) Regulations, 2023 (LODR Second Amendment) (effective from 14 July 2023); (ii) the SEBI (Listing Obligations and Disclosure Requirements) (Third Amendment) Regulations, 2023 (LODR Third Amendment) (effective from 3 August 2023); (iii) the SEBI (Listing Obligations and Disclosure Requirements) (Fourth Amendment) Regulations, 2023 (LODR Fourth Amendment) (effective from 20 September 2023); and (iv) the SEBI (Listing Obligations and Disclosure Requirements) (Fifth Amendment) Regulations, 2023 (LODR Fifth Amendment) (effective from 1 October 2023).

The proactive steps by SEBI resembles how the regulator is now actively taking the three pillars of Corporate Governance i.e., Transparency, Disclosures, Accountability very seriously considering the emerging participation of retail shareholders in the securities market.

The amendments are introduced by the regulator to encourage and promote the timely and effectively disclosures of material events/ information by the listed entities

• SEBI has introduced a new framework on voluntary delisting of on-convertible debt securities (NCDs) or non-convertible redeemable preference shares and obligations of the listed companies on such delisting.
• Timeline to fill vacancy of Chief Executive Officer (CEO), Chief Financial Officer (CFO), Managing Director (MD), Whole Time Director (WTD), Manager, Compliance Officer (i.e., a qualified company secretary), or any director on the Board of the listed entity will have to be filled within 3 months from the date of the vacancy, Previously, the LODR was silent on this, entities are required to follow the provisions of the Companies Act, 2013 in this regard.
• The approval of Members’ of the Company shall be required to be obtained the continuation of the term of the directors serving on the Board of a listed entity at least once every 5 years from the date of their appointment or reappointment, as the case may be, however there are some exceptions are there.
• The Regulator has introduced an objective/threshold-based criterion for determining materiality of events/information for disclosures required to be made by listed entities to stock exchanges

An event / information, whose value or the expected impact in terms of value exceeds the lower of:

• 2% of the turnover, as per the last audited consolidated financial statements;
• 2% of net worth, as per the last audited consolidated financial statements, except in case the arithmetic value of the net worth is negative; or
• 5% of the average of the absolute value of profit or loss after tax, as per the last three audited consolidated financial statements

Note – Absolute value means if any entities bear losses then also it has to be taken in positive figure. For example, (500 Crores) has to be taken as Rs. 500 Crores that means setoff provision is not applicable here, figures to be taken as in simple nature, no profit/loss has to be taken into account.

Prior to this, there were no prescribed criteria for determining the materiality of an event / information for disclosures to be made by listed entities to the stock exchanges. This determination was entirely subjective and dependent upon the discretion of the Board of the listed company. Listed entities accordingly adopted a generic Materiality Policy, merely reproducing the provisions of the LODR.

Revised timeline for disclosures to stock exchanges: The timeline for disclosure of material events and information to stock exchanges under the LODR has been clarified. The disclosure must be made as soon as reasonably possible and no later than:

• 30 minutes from the closure of the meeting of the Board in which the decision pertaining to the event / information has been taken;
• 12 hours from the occurrence of the event / information, in case the event / information is emanating from within the listed entity; and
• 24 hours from the occurrence of the event / information, in case the event / information is not emanating from within the listed entity.

If the disclosure is made after the above timelines, the listed entity shall provide an explanation for the delay along with the disclosure.

Prior to this amendment, a listed entity was required to disclose to stock exchanges all the material events / information as soon as possible and not later than 24 hours from the occurrence of the event / information. No clear timeline was prescribed based on the nature of the event / information.

• Listed entities has to make disclosure of any breach in cybersecurity to the Stock Exchanges regularly, if any happens.
• Disclosure of agreements binding the listed entity: All shareholders, promoters, promoter group entities, related parties, directors, key managerial personnel, and employees of a listed entity or of its holding, subsidiary, and associate company, who are parties to the agreements whose purpose and effect is to, impact the management or control of the listed entity, or impose any restriction or create any liability on the listed entity, are required to inform the listed entity about the agreement to which such a listed entity is not a party, within 2 working days of entering into or signing an agreement to enter into such agreements.
• Disclosure of fraud, default, and arrests: Listed entities are now obligated to disclose any fraud or defaults by the listed entity or subsidiary and any fraud, default, or arrest of its promoter, director, key managerial personnel, or senior management of the listed entity whether occurred within India or abroad. The newly introduced compliance requirement is in line with the international security law requirements.
• Verification of market rumors’: Top 100 listed entities and thereafter the top 250 listed entities with effect from the date as specified by SEBI are required to promptly confirm, deny, or clarify any reported event / information in the ‘mainstream media’ which is not general in nature, and which indicates that rumors’ of an impending specific material event / information are circulating amongst the investing public, within a maximum of 24 hours from the reporting of the event / information. If such rumors’/ event / information is confirmed, the listed entity must provide its current status.
• Further, it is provided in the LODR Second Amendment that in case an event / information is required to be disclosed by the listed entity, pursuant to communication from any regulatory, statutory, enforcement or judicial authority, the listed entity should disclose such communication, along with the event / information, unless the disclosure of such communication is prohibited by the relevant authority.

Mainstream media’ has been defined to include print and electronic modes of:

• Newspapers registered with the Registrar of Newspapers for India;
• News channels permitted by the Ministry of Information and Broadcasting;
• Content published by the publisher of news and current affairs content as defined under the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules 2021; and
• Newspapers or news channels or news and current affairs content similarly registered or permitted or regulated, as the case may be, in jurisdictions outside India

Previously, the listed entity enjoys its discretion to confirm or deny any reported event / information to stock exchanges.

Conclusion

The objective of the regulator (SEBI) clears that the amendment in the LODR will be a continuous process, the above changes to the LODR contain notable steps towards streamlining disclosure and reporting requirements of listed companies in India, thereby minimizing discrepancy in reporting, and aiding the provision of more accurate and consistent information to the investors. These advances announced by SEBI reflect an attempt at, strengthening corporate governance, restoring investor sentiment, increasing private investment in public enterprises, and promoting operational efficiency and practices at listed companies in India.