SEBI- Relaxation between May 12 to May 20– Advisory to disclose impact of COVID-19

Brief Note on relaxations provided by SEBI

Recently  from May 12, 2020 to May 20, 2020

Securities and Exchange Board of India (“SEBI”) being the principal Security Market Regulator in India had announced following relaxations in the month of March and April 2020 in compliances by listed entities.

(a) SEBI/HO/CFD/CMD1/CIR/P/2020/38 dated March 19, 2020,

(b) SEBI/HO/CFD/CMD1/CIR/P/2020/48 dated March 26, 2020,

(c) SEBI/HO/CFD/CMD1/CIR/P/2020/63 dated April 17, 2020 and

(d) SEBI/HO/CFD/CMD1/CIR/P/2020/71 dated April 23, 2020.

1. On May 12, 2020 SEBI announced certain relaxation 

A. Necessitating out of MCA Circulars with reference to despatch of hard copies of annual report, proxy forms and dividend warrants/ cheques

In view of certain relaxations granted by the Ministry of Corporate Affairs (MCA) for conducting Extraordinary General Meeting (EGM) and Annual General Meeting (AGM) through electronic mode and gave relaxation by dispensing with the printing and despatch of annual reports to shareholders and the same can be made available through electronic mode, SEBI has relaxed following three requirements of LODR , 2015 compliances

1. Despatch of hard copies of annual report to shareholders: All listed entities whose convertible securities are listed and all such listed entities whose non – convertible debt securities and/or non-convertible preference shares are listed, are dispensed with the requirement of sending hard copy of a statement containing the salient features and the Annual Report for its AGMs held during the calendar year 2020 (as required u/s 136 of the Companies Act, 2013) to its shareholders who request for it and also to those shareholders who have not registered their email address(es) with the listed entity which otherwise the listed entity is required to send as per Regulation 36 (1) (b) & (c) and Regulation 58 (1)(b) &(c) of LODR , 2015.

2. Despatch of proxy form for AGM: The listed entity whose convertible securities are listed are dispensed with the requirement of sending proxy forms to its shareholders for the its AGMs held during the calendar year 2020 through electronic mode, which it otherwise is obliged to send proxy form as per Regulation 44 (4) of LODR, 2015.

3. Despatch of Dividend Warrants / Cheques : The listed entity shall endeavor to use the facility of electronic clearing services (ECS) or real time gross settlement (RTGS) or national electronic funds transfer (NEFT) as mentioned in Schedule I of LODR, 2015 for payment of Dividend Warrants to those shareholders whose email address is available with it. However, for those shareholders whose email address is not available with it, the listed entity can send the Dividend Warrants or Cheque ‘Payable at Par’ by ordinary post ( for amount less than INR 1500/- ) and by speed post (for amount more than INR 1500/-) upon normalization of postal services. The same will be considered as compliance of Regulation 12 of LODR , 2015.

B. Exemption from publication of advertisements in the newspaper

1. Listed entity whose convertible securities are listed on stock exchange are required to publish the following information in the newspaper as required under Regulation 47 of LODR, 2015:

(a)  Notice of meeting of the board of directors where financial results shall be discussed

(b) Financial results (standalone and consolidated) along-with the modified opinion(s) or       reservation(s), if any, expressed by the auditor along with few more details

(c) Statements of deviation(s) or variation(s) of use of funds raised through public issue, right issue, preferential issue and actual use of funds, on quarterly basis, after review by audit committee and its explanation in directors report in annual report;

(d)  Notices given to shareholders by advertisement.

2. Similarly, the listed entity whose non-convertible debt or non-convertible preference shares are listed on stock exchange are required to publish within two calendar days of the conclusion of the meeting of the board of directors, financial results and statement with certain details as per Regulation 52 (4) of LODR, 2015 in the newspaper as required under Regulation 52 (8) of LODR, 2015.

3. Earlier SEBI had exempted publication of advertisements in newspapers, as required under Regulation 47 and Regulation 52(8) of the LODR, 2015 till May 15, 2020. Now, in view of the continuing lockdown and the resultant bottlenecks relating to print versions of newspapers, SEBI extended the exemptions from publication of advertisements in newspapers are extended for all events scheduled till June 30, 2020.

C. Relaxation from publishing Quarterly Consolidated Financial Results

1. In case the listed entity has subsidiaries, as per Regulation 33(3)(b) of LODR , 2015, the listed entities in addition to the requirement of publishing quarterly and year-to-date standalone financial results to the stock exchange within 45 days of end of each quarter(other than the last quarter), the listed entity is also required to submit quarterly/year-to-date consolidated financial results .

2. The Companies (Indian Accounting Standards (IND-AS)) Rules, 2015 stipulate the adoption and applicability of IND-AS in a phased manner beginning from the financial year 2016-17. Currently, IND-AS is applicable to all listed entities with the exception of those in the banking and insurance sectors. RBI and IRDA have not yet notified the date of implementation of IND-AS for banks and insurance companies, respectively.

3. SEBI has received representations from listed entities that are banks or insurance companies as well as those that have banks and / or insurance companies as its subsidiaries, highlighting the challenges in preparing consolidated financial results under Regulation 33(3)(b) of LODR, 2015 in view of different accounting standards being followed by companies belonging to same group and the difficulties in restating those financials as per IND-AS due to the prevailing circumstances in view of CoVID19 pandemic.

4. After considering the representations, SEBI gave relaxations as follow:

i. Listed entities which are banking and / or insurance companies or having subsidiaries which are banking and / or insurance companies shall submit the standalone financial results by June 30, 2020 and later it may submit consolidated financial results for the quarter ending June 30, 2020 on a voluntary basis.

ii. If such listed entities choose to publish only standalone financial results and not consolidated financial results, they shall give reasons for the same.

The link for aforesaid Circular is as below

https://taxguru.in/sebi/additional-relaxation-compliance-sebi-lodr-regulations.html

2. On May 14, 2020 SEBI announced relaxation from compliance of Minimum Public Shareholding (MPS) requirements

a. SEBI has relaxed listed entities from the compliance of its Circular dated October 10, 2017 which mandates Minimum Public Shareholding (MPS) requirements of at least 25% otherwise laid down the procedures to be followed by the stock exchanges with respect to non-compliant listed entities, their promoters and directors including levying of fines and freezing of promoters shareholdings. SEBI directs stock exchanges to review whether listed company is in compliance with MPS requirement based on shareholding pattern/ other filings. In case of the non- compliance, the stock exchange is required to issue notice within 15 days from the date of observation. Thereafter intimates about all actions taken/ being taken as per the circular. SEBI also instructs stock exchanges to periodically disclose the name, amount of fine imposed, freezing of shares held by the promoters and promoter group, status of compliance including the details regarding fine paid by the entity and the other actions taken against the entity.

b. After receiving various requests from the listed entities & Industry Bodies and in view of the prevailing business and market conditions in the Country, SEBI provided relaxation for listed entities for whom the deadline to comply with MPS requirements falls between the period from March 1, 2020 to August 31, 2020 and also advised the Stock exchange not to take any penal action against such entities. SEBI also directed stock exchanges that penal action, if any initiated by stock exchanges, from March 01, 2020 till date of non-compliances of MPS requirements by such listed entities may be withdrawn. The link for aforesaid Circular is as below:

https://taxguru.in/sebi/sebi-relaxes-compliance-minimum-public-shareholding-requirements.html

3. On May 14, 2020 SEBI announced relaxations relating to procedural matters—Takeovers and Buy-Back

SEBI has with immediate effect granted one time relaxations from strict enforcement of certain regulations of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereafter “Takeover Regulations) and SEBI (Buy-back of Securities) Regulations, 2018 (hereafter “Buy-back Regulations) pertaining to open offers and buy-back tender offers opening upto July 31, 2020. 

1. Service of the letter of offer and/or tender form and other offer related material to shareholders may be undertaken by electronic transmission as already provided under Regulation 18(2) of the Takeover Regulation and Regulation 9(ii) of Buyback Regulations subject to the following:

a. The acquirer / company shall publish the letter of offer and tender form on the websites of the company, registrar, stock exchanges and the manager(s) to offer.

b. The acquirer / company along with lead manager(s) shall undertake all adequate steps to reach out to the/its shareholders through other means such as ordinary post or SMS or audio-visual advertisement on television or digital advertisement, etc.

c. Further, the Acquirer/ Company shall make an advertisement containing details regarding the dispatch of the letter of offer electronically and availability of such letter of offer along with the tender form on the website of the company, registrar and manager to the offer in the same newspapers in which (i) detailed public statement was published as per regulation 14(3) of Takeover Regulation or (ii) public announcements was published as per regulation 7(i) of Buy-back regulation.

d. Further, the acquirer/ company may have the flexibility to publish the dispatch advertisement in additional newspapers, over and above those required under the respective regulations.

e. The acquirer/ company shall make use of advertisements in television channels, radio, internet etc. to disseminate information relating to the tendering process. Such advertisements can be in the form of crawlers/ tickers as well.

f. All the advertisement issued should also be made available on the website of the company, Registrar, Managers to the offer, and Stock Exchanges.

2. The acquirer/ company and the manager to offer shall provide procedure for inspection of material documents electronically.

3. As far as possible, attempts will be made to adhere to the existing prescribed framework.

The link for aforesaid Circular is:

https://taxguru.in/sebi/sebi-relaxations-takeovers-buy-back-regulations.html

4. On May 20, 2020 SEBI directed listed entities to disclosure the impact of COVID–19 Pandemic on its operations

1. SEBI has advised / encouraged listed entities to evaluate the impact of the COVID-19 pandemic on their business, performance and financials, both qualitatively and quantitatively, to the extent possible and disseminate the same to the Stock Exchanges. This circular has come into force with immediate effect.

2. This Circular is issued in the wake of COVID-19 where SEBI’s concern is that due to the gaps in information available about the operations of a listed entity, it can lead to distortions in the market. Hence, it is important for a listed entity to ensure that all available information about the impact of COVID-19 on the company and its operations is communicated in a timely and cogent manner to its investors and stakeholders.

3. Various provisions under LODR,2015 require listed entities to disclose material events which have a bearing on its performance / operations. Regulation 30(3) of LODR, 2015 specifies that a listed entity shall make disclosures of events specified in Para B of Part A of Schedule III of LODR, 2015 based on application of the guidelines for materiality. Clause 6 of Para B of Part A of Schedule III of LODR ,2015 specifies events such as “Disruption of operations of any one or more units or division of the listed entity due to natural calamity (earthquake, flood, fire etc.), force majeure or events such as strikes, lockouts etc.” that shall be disclosed upon application of the guidelines for materiality referred in Regulation 30(4).The listed  entity is required to  consider  the  following  criteria  for  determination of materiality of events/ information:

a. the omission  of  an  event  or  information,  which  is  likely  to  result  in discontinuity   or alteration   of   event   or   information   already available publicly; or

b. the omission  of  an  event  or  information  is  likely  to  result  in  significant market reaction if the said omission came to light at a later date;

c. In case  where  the  criteria specified  in  sub-clauses (a)  and  (b) above are  not applicable, an  event/information  may  be  treated  as  being  material  if  in  the opinion  of  the board of  directors  of  listed entity,  the  event  / information  is considered material.

d. The listed entity shall frame a policy for determination of materiality, based on criteria  specified  in  this  sub-regulation,  duly  approved  by  its  board  of directors, which shall be disclosed on its website.

4. SEBI vide Circular No. CIR/CFD/CMD/4/2015 dated September 9, 2015 had provided that in order to enable investors to make well-informed investment  decisions,  timely, adequate  and  accurate  disclosure  of  information  on  an  ongoing  basis  is essential. Also,  there  is  a  need  of  uniformity  in  disclosures  made  by  listed  entities to  ensure compliance  in  letter  and  Annexure I of the said circular, specifically provides the details to be disclosed in cases of disruptions of operations due to natural calamity, force majeure or  events such as strikes, lockouts etc at the time of occurance and till the normalcy is restored.

5. Similarly Regulation 51(1) of LODR, 2015 requires listed entities whose non-convertible debt securities and/ or non-convertible preference shares are listed with stock exchanges to promptly disclose and disseminate all information to the stock exchange which has bearing on its performance/ operation , price sensitive information or any action that shall affect payment of interest or dividend of non-convertible preference shares or redemption of non-convertible debt securities or redeemable preference shares. Further as per Clause 16 of Part B of Schedule III read with Regulation 51(2) of  LODR, 2015 such listed entities shall promptly inform to the stock exchange(s) of any other information having bearing on the operation/performance of the listed entity

6. Listed entities around the world have been making disclosures regarding the impact of the pandemic, including that on financial condition and results of operations, future operations, capital and financial resources, liquidity, assets, internal financial control over financial reporting and disclosure controls and procedures, demand for products/services etc. Regulators have encouraged timely reporting as well as complete and accurate disclosure of the impact, as far as possible.

7. An illustrative list (not exhaustive list) of information that listed entities may consider disclosing, subject to the application of materiality, is given below:

a. Impact of the CoVID-19 pandemic on the business;

b. Ability to maintain operations including the factories/units/office spaces functioning and closed down;

c. Schedule, if any, for restarting the operations;

d. Steps taken to ensure smooth functioning of operations;

e. Estimation of the future impact of CoVID-19 on its operations;

f. Details of impact of CoVID-19 on listed entity’s –

i. capital and financial resources;

ii. profitability;

iii. liquidity position;

iv. ability to service debt and other financing arrangements;

v. assets;

vi. internal financial reporting and control;

vii. supply chain;

viii. demand for its products/services;

g. Existing contracts/agreements where non-fulfilment of the obligations by any party will have significant impact on the listed entity’s business;

h. Other relevant material updates about the listed entity’s business.

Further, to have continuous information about the impact of COVID-19 on operations, listed entities may provide regular updates, as and when there are material developments.

8. It has been advised by SEBI that, while submitting financial statements under Regulation 33 of the LODR, 2015 listed entities may specify/include the impact of the COVID-19 pandemic on their financial statements, to the extent possible.

9. As a matter of principle, it has been advised that listed entities should not resort to selective disclosures, keeping in mind the principles governing disclosures and obligations of a listed entity as prescribed in LODR ,2015, more specifically. The listed entities have also been advised to provide regular updates, as and when there are material developments.

The link for aforesaid Circular is:

https://taxguru.in/sebi/advisory-disclosure-material-impact-covid-19-pandemic.html

Conclusion Since March 25, 2020 the Lock down announced and considering the situation, SEBI has initiated proactively number of announcements relaxing certain compliances or extending the time for compliances by listed entities. It’s been great relief to compliance officers, listed entities and various intermediaries to plan their actions accordingly.

Contributed by Anupriya Article and Palak Joshi, Associate CS

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Company: Amita Desai & Co
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Amita Desai is a Fellow Company Secretary and Insolvency professional in practice since 1995 Her expertise lies in following .She can be reached at amita@amitadesai.com 1. Business and Legal Advisory on Corporate Law 2. Foreign Exchange Management Act 3. Drafting and Appearance before Tribunal View Full Profile

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One Comment

  1. Dinesh Kumar says:

    Very nice article consolidating all relaxations. Can you please help whether time-limit to send financial results of June 2020 quarter extended or not. Thanks

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