Mrs. Jaya Sharma & Ms. Kruti Shah
BRIEF FACTS:
- CAPITAL MARKET regulator SEBI has been devising and enforcing various measures, from time to time, to protect the interest of investors and the sanctity of the capital market by making listed companies more accountable through enhanced disclosures.
- In India, with the creation of the capital market regulator SEBI in 1992, SEBI has been regulating listed companies through the medium of listed agreement entered into between each listed company with the concerned stock exchange. Compliance with the listing conditions is mandatory by virtue of the governing law.
- The Listing agreement is considered to be tri party agreement which was been executed between sellers, brokers and agents are defined.
- India has had a chequered history in terms of using listing requirements as measures of governance, disclosures and other conditions of continued listing. Listing requirements have been enshrined in the listing agreement that is entered into between the issuer company and the stock exchanges on which the issuer’s securities are listed. The modifications to provisions of Listing Agreement are prescribed by SEBI.
In order to maintain a single document in line with the Listing Agreement and to address the concerns of excessive delegation in the garb of flexibility with respect to certain areas, such as, disclosure requirements and corporate governance norms, SEBI has decided to convert the listing agreement into the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
- SEBI has revamped its Listing Agreement that the companies need to enter into with the stock exchanges while listing its securities with the new SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI Listing Regulations”) The Listing Regulations have been notified with the regulator aiming to consolidate and streamline the existing listing agreements for different segments of the capital market into one single document across various types of securities listed on the stock exchanges. The existing equity listing agreement comprises 54 clauses (BSE equity listing agreement), many of which have been added over the years from time to time and this coupled with the fact that SEBI has issued hundreds of amendments and clarifications in respect of several of those clauses, thereby making the listing agreement a very cumbersome document.
MAIN KEY HIGHLIGHTS OF NEW REGULATIONS:
♦ Laying down principles governing disclosures and obligations of the listed entities and their Compliance Officers.
♦ Providing common obligations applicable to all listed entities.
♦ Providing obligations which are applicable to specific types of securities.
♦ Streamlining and segregation of initial issuance / listing obligations.
♦ Registration with SEBI SCORES.
♦ Prior Intimation of the company’s fund raising events.
♦ Ensuring uniformity in timelines for rendering intimations to Exchanges.
♦ Small and Medium Enterprises (SME) are now under the ambit of the new Listing Regulations.
CLARITY ON SOME PROVISIONS:
Some of the ambiguous provisions of LODR, which require some clarity from the SEBI are as under:
> The applicability of the Business Responsibility Report- whether the reporting requirement is from FY 2016-17 or FY 2017-18;
> The applicability of the requirement of disclosing the acquisition of 5% of shares/voting rights in a company or further +/- 2% change by a NBFC or a banking company when such acquisition is pursuant to any CDR/SDR schemes floated by RBI –the same should be exempted by way of a notification;
> For the purpose of Regulation 9, which pertains to preservation of documents – the definition of the term “documents”–whether the same is limited to the documents required under LODR or includes documents pertaining to other laws like Companies Act, 2013 as well;
> For the purpose of Regulation 30, while the qualitative definition of materiality of event is given, the quantitative definition of the same is left to be inferred from international standards and thumb rule;
> Regarding “archival policy”–Except for a mention in regulation 30(8), the Regulations nowhere provides about preparing/adopting of an archival policy. Therefore a listed entity apparently has to have an archival policy. However, there is no clarity on the point that if such entity already have an archival policy in place, whether streamlining the same in line with the regulations will suffice or will such entity have to prepare a new archival policy altogether;
> The SEBI circular regarding disclosure of shareholding of a listed entity mentions about disclosing of details of “NBFCs registered with RBI”–it is not possible for a listed entity to know which all shareholders who are NBFCs are registered.
WEBSITE BASED DISCLOSURE:
Website based disclosure is considered as the event based information. Below mentioned is the information, which needs to be mandatorily disclosed on the listed company’s website.
| Sr No. | Regulation | Brief Description |
| 1 | 46(2) | ♦ Details of the business including terms and conditions of Independent Directors;
♦ Composition of Various committees of Board of Directors; ♦ Code of Conduct of Board of Directors and Senior Management Personnel; ♦ Details of establishment of Vigil Mechanism / Whistler Blower Policy; Criteria of making payments to non-executive directors , if the same has not been disclosed in annual report; ♦ Policy on dealing with related party transactions; ♦ Policy for determining material‘subsidiaries; ♦ the email address for grievance redressal and other relevant details; ♦ contact information of the designated officials of the listed entity who are responsible for assisting and handling investor grievances; ♦ details of agreements entered into with the media companies and/or their associates, etc; ♦ schedule of analyst or institutional investor meet and presentations made by the listed entity to analysts or institutional investors simultaneously with submission to stock exchange; ♦ new name and the old name of the listed entity for a continuous period of one year, from the date of the last name change; |
| 2 | 46(3) | The listed entity shall ensure that all the information mentioned on the website is true and correct and simultaneously the listed entity shall update any change in the content of its website within two working days from the date of such change in content. |
- The listed entity shall disclose on its website all such events or information which has been disclosed to stock exchange(s) under this regulation, and such disclosures shall be hosted on the website of the listed entity for a minimum period of 5 years and thereafter as per the archival policy of the listed entity, as disclosed on its website.
- Now days, in the today’s world listed companies are not taking keen interest in making proper disclosure/ information which they needs to be kept updated on their companies website.
- Items required to be hosted on website as per Regulation 62 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 for debt and preference shares listed.
♦ Names of Debenture Trustees;
♦ Information with regard to default in payment of interest / redemption amount, failure in creation of charge, etc;
♦ Revision of credit rating.
PENALTY FOR NON-COMPLIANCE OF LODR REGULATIONS:
The Recognized Stock Exchange shall impose fine on listed entities for noncompliance with certain provisions of the Listing Regulations for non submission/ delay in submission of reports/ documents to recognized stock exchange as under:
| Regulation | Fine payable for 1st non-compliance | Fine Payable for each subsequent and consecutive noncompliance |
| Regulation 27 (2) : Non submission of the Corporate governance compliance report within the period provided under this regulation. | ₹1,000 per day of on compliance till the date of compliance | ₹2,000 per day of noncompliance till the date of compliance |
| Regulation 31: Non submission of the Shareholding pattern within the period prescribed under this regulation. | ₹1,000 per day of noncompliance till the date of compliance and If non-compliance continues for more than 15 days, additional fine of 0.1 % of paid up capital* of the entity or ₹1 crore, whichever is less. | ₹2,000 per day of noncompliance till the date of compliance and If non-compliance continues for more than 15 days, additional fine of 0.1 % of paid up capital* of the entity or ₹1 crore, whichever is less. |
| Regulation 33 : Non submission of the financial results within the period prescribed under this regulation . | ₹5,000 per day of noncompliance till the date of compliance and If non-compliance continues for more than 15 days, additional fine of 0.1 % of Paid Up capital* of the entity or ₹1 crore, whichever is less. | ₹10,000 per day of noncompliance till the date of compliance and If non-compliance continues for more than 15 days, additional fine of 0.1 % of Paid Up capital* of the entity or ₹1 crore, whichever is less. |
| Regulation 34 : Non submission of the Annual Report within the period prescribed under this regulation. | If non-compliance continues for more than 5 days, ₹1,000 per day till the date of compliance | ₹2,000 per day of noncompliance till the date of compliance |
* Paid up capital as on first day of the financial year in which the non-compliance occurs.
♦ The amount of fine realized as per the above structure shall be credited to the “Investor Protection Fund” of the concerned recognized stock exchange.
♦ The recognized Stock Exchanges shall disseminate on their website, the names of non-compliant listed entities that are liable to pay fine for non-compliance of the above regulations.
♦ Every recognized stock exchange shall review the compliance status of the listed entities within 15 days from the due date for compliance for the respective regulation and issue notices to the non-compliant listed entities to ensure compliance and pay fine as per this circular within 15 days from the date of the
notice.
♦ If any non-compliant listed entity fails to pay the fine despite receipt of the notice as stated above, the recognized stock exchange may initiate appropriate enforcement action, including prosecution.
LODR V/S Companies Act, 2013:
| Sr No. | Particulars | Listing Regulations | Companies Act, 2013 |
| 1 | Applicability | Not applicable to those companies whose paid up capital is less than Rs. 10 crores and net worth is less than Rs. 25 crores. | No such Exemption. |
| 2 | Composition of Board of Directors | ½ of the Board or 1/3rd of the Board depending on whether the Chairman is Executive or Non-Executive. | No such distinction. Specifies that 1/3rd shall be independent. |
| 3 | Woman Director | Only to such companies to whom corporate governance Regulations are applicable. | Applicable to all listed entities.
|
| 4 | Audit Committee Constitution | Minimum 3 members with 2/3rd being independent. | Minimum 3 with majority being independent. |
| 5 | Audit Committee – Quorum | 2/3rd of the members or 2 members of which 2 shall be independent directors. | No stipulation for quorum.
|
| 6 | Nomination and Remuneration Committees | Role shall also include a policy for diversity in the Board of Directors. | No such stipulation.
|
| 7 | Risk Management Committee | Applicable only to top 100 companies by Market Capitalization. | To all listed entities – to include a Risk Management Policy in the Annual Report. |
| 8 | Related Party Transactions | Covers all transactions with a related party. Prior Approval of the Audit Committee a must. | Covers transactions as specified under Section 188. Approval of the Board of Directors a must. |
| 9 | Omnibus Approvals | A limit of Rs. one crore per transaction stipulated. Validity of the approval is for a year. | No limit specified. Validity of the approval is for a financial year |
| 10 | Material Related Party Transactions | A blanket limit of 10% of the annual consolidated turnover of the previous year specified. All the related parties cannot vote on the resolution. | Transaction wise limit has been specified. Only to the parties to the transaction cannot vote on the transaction.
|
| 11 | Independent directors –Limit | 7 listed entities. | 10 public companies
|
| 12 | Contract | To be hosted on the website within one working day. | No Such Requirement.
|
| 13 | Familiarization programmes | Required for the Independent directors and attendance particulars to be hosted on the website. | No such requirement has been specified. |
JUDICIAL PRONOUNCEMENTS:
1. CASE NAME : Gillette India Limited vs. Securities Exchange Board of India.
Decided on July 03, 2013 against Appeal No. 65 of 2013.
FACTS OF THE CASE:
- Procter & Gamble India Holdings BV (P&G) is a promoter of Gillette holding 75.9% voting rights; The Poddar group is the Indian promoter with 12.9% voting rights;
- The total promoter holding is hence in excess of the 75% permitted by the public shareholding norms; Therefore, Gillette‟s proposal was that the Poddar group would first transfer 4% of its shares to P&G; Thereafter, the Poddar group would be classified as an ordinary public shareholder as it would lose all its rights as a promoter (including by virtue of termination of rights under the shareholders agreement and articles of association).
- This approach was resisted by SEBI on the ground that this militates against the spirit of the public shareholding norms in that the promoter holding would in fact be increased rather than diluted in this process.
Gillette had filed an appeal against an order of the (SEBI) rejecting Gillette‟s proposal for compliance with the public shareholding norms. However, SAT dismissed Gillette‟s appeal in an order that extensively considers the background and rationale for the public shareholding norms in arriving at a decision.
JUDGEMENT: The Securities Appellate Tribunal pronounced that the Appellant had inadvertently overlooked the fact that the underlying philosophy behind the requirement of a minimum public holding of 25% is prevention of concentration of shares in the hands of a few market players and clarified its preference for compliance with the minimum public shareholding norms through one of the prescribed methods rather than through more complex methods such as the one proposed in that case.
2. CASE NAME: Satyam Computer Services vs. Securities Exchange Board of India.
Decided on September 2014.
FACTS OF THE CASE:
- Satyam Computer Services was a corporate scam that occurred in India in 2009.The Ex-managing Director, Ex- Vice President Finance and Ex- Head (Internal Audit) falsified the books of accounts and misstated the financials of Satyam Computer Services thus portraying a false picture of its published Quarterly or Annual Returns.
- The Ex- officials of Satyam sued up deals with fictitious clients and introduced over 7000 fake invoices into the computer systems. It reported sales of over INR 5200 crores after years of manipulation. (Year 2008-09); real figures amounted to INR 4100 crores;
- Issued false certification, made various false announcements and press releases on the misstated financial position of the company;
JUDGEMENT: SEBI restrained Ex- Officials of the company from assessing the capital markets for a period of 14 years. Further they were required to disgorge the wrongful gains made by them to the extent of nearly INR 1850 crores with an interest at the rate of 12 per cent. Per annum from January, 2009 till the date of payment.
3. CASE NAME: Sahara vs. SEBI-An In-Depth Analysis Of The Landmark Supreme Court Ruling
Civil Appellate Jurisdiction I.A. NOS. 59 –61 OF 2015 AND I.A. NOS. 62 –64 OF
2015 and Civil Appeal NO. 8643 OF 2012.Decided on August 31, 2012.
FACTS OF THE CASE:
- The Supreme Court on 31st August, 2012 in one of its most anticipated judgment of recent times has directed the Sahara Group and its two group companies Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation Limited (SHICL) to refund around Rs 17,400 crore to their investors within 3 months from the date of the order with an interest of 15%.
- The Supreme Court while confirming the findings of the SAT has further asked SEBI to probe into the matter and find out the actual investor base who have subscribed to the Optionally Fully Convertible Debentures (OFCDs) issued by the two group companies SIRECL and SHICL.
JUDGEMENT: The two Sahara companies also contended that the OFCDs being in the nature of Convertible bonds issued on the basis of the price agreed upon at the time of issue and, therefore, the provisions of SCR Act are not applicable in view of Section 28(1)(b) thereof and therefore SEBI will have no jurisdiction. The Supreme Court rejected this contention and held that the amendment in the SCRA was made and subsequently Sec 28 was inserted to exempt convertible bonds by foreign financial institutions that had an option to obtain shares at a later date.
ROLE OF COMPANY SECRETARY:
> The role of the Company Secretary has evolved over a period of time from a mere compliance caretaker to key managerial personnel responsible for ensuring compliance of all the acts applicable to the company.
> There are a number of responsibilities and obligations of the compliance officer, some of which have been explicitly mentioned in the Regulations, where the Company Secretary can assist and add value. This specialized role of the modern Company Secretary can assist and add value.
> The specialized role of the modern Company Secretary as Compliance officer has emerged to position them as one of the key governance professionals within the organization.
> To report the Board about the Compliance with regards to Secretarial Standards and assist and advice Board in complying with Corporate Governance and best practices.
CONCLUSION:
One Regulation to Rule them all will be more effective and bring more transparency in the compliance portion for listed companies. The timely compliances will involve cost and resources for listed entities and may cause implementation difficulties for medium and small companies. This results into fairly critical for listed companies to assess their preparedness for ensuring compliance and avoiding hefty penalties. Some of the provisions in the LODR which are left for interpretation by the market participants. The only way to find a conclusion is by way of clarification from SEBI. There is also a great deal of emphasis on investor Redressal. The LODR Regulations also incorporate several other procedural matters that have hitherto been addressed in the listing agreement.
Author Bio
A very detailed interpretation and analysis on rather an unexplored subject…..