Introduction: SEBI (LODR) Regulations, 2015, are a vital component of corporate governance in India, primarily focusing on enhancing transparency and safeguarding the interests of stakeholders in listed entities. Before diving into their applicability, it’s imperative to grasp some key terms elucidated by SEBI (LODR) Regulations, 2015.
Specified Securities: This term encompasses ‘equity shares’ and ‘convertible securities,’ with definitions aligning with SEBI (ICDR) Regulations, 2018.
Designated Securities: A comprehensive category encompassing specified securities, non-convertible debt securities, non-convertible redeemable preference shares, perpetual debt instruments, perpetual non-cumulative preference shares, Indian depository receipts, securitized debt instruments, units issued by mutual funds, Zero Coupon Zero Principal Instruments, and any other securities specified by the Board.
Zero Coupon Zero Principal Instruments: These unique instruments are issued by not-for-profit organizations registered with the social stock exchange segment of a recognized stock exchange.
Listed Entity: This term refers to an entity that has listed its designated securities on recognized stock exchange(s) in accordance with the listing agreement between the entity and the recognized stock exchange(s).
Securitized Debt Instruments: The meaning of this term is ascribed in the Securities and Exchange Board of India (Issue and Listing of Securitized Debt Instruments and Security Receipts) Regulations, 2008.
Security Receipts: Defined under the Securities and Exchange Board of India (Issue and Listing of Securitized Debt Instruments and Security Receipts) Regulations, 2008.
Stock Exchange: A recognized stock exchange as defined under clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956, encompassing notable exchanges like NSE and BSE.
Non-Convertible Debt Securities: These are ‘debt securities’ as defined under the Securities and Exchange Board of India (Issue and Listing of Non-Convertible Securities) Regulations, 2021.
Indian Depository Receipts: Refers to Indian depository receipts as defined in sub-section (48) of section 2 of the Companies Act, 2013.
Regulation 3: These regulations are applicable to a listed entity that has listed any of the following designated securities on recognized stock exchange(s):
i. Specified securities listed on the main board (NSE, BSE), SME Exchange, or Innovators Growth Platform.
ii. Non-convertible securities.
iii. Indian depository receipts.
iv. Securitized debt instruments.
v. Security receipts.
vi. Units issued by mutual funds.
vii. Any other securities as specified by the Board.
Explanations: “Unless otherwise provided”: This clause emphasizes that if any provisions within these regulations are inconsistent with other provisions, those divergent provisions are not governed by these regulations.
Regulation 3(2): Notably, the provisions based on market capitalization criteria continue to apply to listed entities even if they subsequently fall below such thresholds.
Explanations: Some provisions within these regulations are tailor-made for listed entities with high market capitalization compared to their peers. For example, the mandate to appoint at least one woman independent director applies to the top 1000 listed entities based on market capitalization. This requirement endures, even if an entity slips below the top 1000 list after its initial application.
Regulation 3(3): The provisions triggered by the criterion of the value of outstanding listed debt securities remain effective even if the entity later falls below the specified thresholds, as mentioned in sub-regulation (1A) of regulation 15.
Explanations: Once a listed entity surpasses the threshold limit (e.g., ₹500 crore or above of listed non-convertible debt securities), subsequent decreases in market capitalization do not negate the regulations’ applicability.
SEBI (LODR) Regulations, 2015, play a pivotal role in maintaining transparency and accountability in the Indian stock market. These regulations empower stakeholders, investors, and the public with the necessary information to make informed decisions about listed entities. Here’s why these regulations are crucial:
i. Enhanced Transparency: By imposing disclosure requirements on listed entities, these regulations ensure that critical information about their financial health, governance practices, and material developments is readily available to the public. This transparency fosters trust among investors and stakeholders.
ii. Protection of Investor Interests: SEBI (LODR) Regulations prioritize the protection of investor interests. By mandating disclosures of financial results, shareholding patterns, and corporate governance practices, these regulations enable investors to assess the risk associated with their investments accurately.
iii. Market Integrity: The regulations contribute to maintaining the integrity of the securities market. The timely disclosure of material events and developments prevents insider trading and market manipulation, ensuring a level playing field for all market participants.
iv. Corporate Governance: SEBI (LODR) Regulations promote good corporate governance practices. For instance, the requirement to appoint independent directors, including women directors, enhances the governance structure of listed entities, fostering responsible decision-making.
v. Prevention of Fraud: By requiring disclosure of related-party transactions, auditors’ reports, and deviations from corporate governance norms, these regulations serve as a deterrent to fraudulent activities within listed entities.
In conclusion, SEBI (LODR) Regulations, 2015, represent a significant milestone in India’s corporate governance landscape. These regulations create a framework for transparency, accountability, and investor protection in the securities market. As stakeholders, investors, and the public, understanding the applicability and key terms of these regulations is essential for participating in a fair and informed manner in the Indian stock market.
These regulations not only empower investors with vital information but also serve as a reminder to listed entities to uphold high standards of governance and disclosure. Ultimately, SEBI (LODR) Regulations, 2015, contribute to the overall health and integrity of India’s securities market, bolstering investor confidence and fostering economic growth.
Disclaimer: The information provided here is for reading and knowledge purposes only. It does not constitute legal advice. For legal advice, consult with a qualified professional familiar with relevant laws and regulations.