SEBI’s Second Amendment Regulations 2023 bring major changes to LODRs, impacting directors’ permanency, KMP vacancies, materiality, cyber security disclosures, and more. Stay updated!
The SEBI on 14.06.2023 notified the SEBI (Listing Obligations and Disclosure Requirements) (Second Amendment) Regulations, 2023.The major amendment includes non-permanency of the directors on the board, faster filling of vacancy of KMPs, introduction of threshold-based parameters for identifying the materiality of events/information etc.
Amendments on regulations as follows:
1. In regulation 2 (1) definition of Mainstream media is inserted namely,-
“(ra) “mainstream media” shall include print or electronic mode of the following:
i. Newspapers registered with the Registrar of Newspapers for India;
ii. News channels permitted by Ministry of Information and Broadcasting under Government of India;
iii. 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
iv. 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;”
2. In regulation 6 i.e. Compliance officer and his/ her obligations timeline to fill vacancy of KMP within 3 months:
SEBI has inserted a regulation 6(1A) which defines that any vacancy in the office of the Compliance Officer shall be filled by the listed entity at the earliest and in any case not later than three months from the date of such vacancy.
Further, the listed entity shall not fill such vacancy by appointing a person in interim capacity, unless such appointment is made in accordance with the laws applicable in case of a fresh appointment to such office and the obligations under such laws are made applicable to such person.”
3. In regulation 15 Chapter IV i.e. obligations of a listed entity which has listed its specified securities and non-convertible debt securities. The provisions was applicable on ‘high value debt listed entity’ on a ‘comply or explain’ basis until March 31, 2023 has been extended until March 31, 2024 and shall be applicable on a mandatory basis thereafter;
4. In regulation 17 i.e. Board of Directors sub- regulation (1D) is inserted With effect from April 1, 2024, the continuation of a director serving on the board of directors of a listed entity shall be subject to the approval by the shareholders in a general meeting at least once in every five years from the date of their appointment or reappointment, as the case may be:
Further, the director serving on the board of directors of a listed entity as on March 31, 2024, without the approval of the shareholders for the last five years or more shall be subject to the approval of shareholders in the first general meeting to be held after March 31, 2024.
In the following cases the approval of shareholders shall not be required:
(a) In case of the Whole-Time Director, Managing Director, Manager, Independent Director or a Director retiring as per Section 152(6) of the Companies Act, 2013, if the approval of the shareholders for the reappointment or continuation of the aforesaid directors or Manager is otherwise provided for by the provisions of these regulations or the Companies Act, 2013 and has been complied.
(b) Director is appointed pursuant to the order of a Court or a Tribunal
(c) Nominee director of the Government on the board of a listed entity, other than a public sector company.
(d) Nominee director of a financial sector regulator on the board of a listed entity.
€ Director nominated by a financial institution registered with or regulated by the Reserve Bank of India under a lending arrangement in its normal course of business.
(f) Director nominated by a Debenture Trustee registered with the Board under a subscription agreement for the debentures issued by the listed entity.
5. In regulation 17 i.e. Board of Directors sub- regulation (1E i.e. Timeline to fill vacancy in the office of a director) is inserted which defines that if any vacancy in the office of a director shall be filled by the listed entity at the earliest and in any case not later than three months from the date such vacancy:
Further, if the listed entity becomes non-compliant with the requirement under sub-regulation (1) of this regulation, due to expiration of the term of office of any director, the resulting vacancy shall be filled by the listed entity not later than the date such office is vacated:
Provided further that this sub-regulation shall not apply if the listed entity fulfils the requirement of optimum combination of executive and non –executive director without filling the vacancy.”
6. In regulation 26 i.e. Obligations with respect to employees including senior management, key managerial personnel, directors and promoters another regulation as SEBI has inserted regulation 26A for “Vacancies in respect of certain Key Managerial Personnel” which defines that any vacancy in the office of Chief Executive Officer, Managing Director, Whole Time Director or Manager and Chief Financial Officer shall be filled by the listed entity at the earliest and in any case not later than three months from the date of such vacancy:
Further, the listed entity shall not fill such vacancy by appointing a person in interim capacity, unless such appointment is made in accordance with the laws applicable in case of a fresh appointment to such office and the obligations under such laws are made applicable to such person.
7. In regulation 27 which deals with Other corporate governance requirements in sub regulation 2 another clause (ba) has been inserted which mandates the disclosure of details of cyber security incidents or breaches or loss of data or documents in the quarterly compliance report.
8. In regulation 30(4)(i)i.e criteria for determination of materiality of events/ information, sub- clause(b) the word “later date: is omitted and “or” is insertede. The listed entity shall determination of materiality of events/ information if the omission of an event or information is likely to result in significant market reaction if the said omission came to light ;or
9. In regulation 30(4)(i) specifies the criteria for determination of materiality of events/ information, sub- clause (c) is substituted with the following sub-clause which provides the threshold criteria for determination of materiality of events/ information, namely
The omission of an event or information, whose value or the expected impact in terms of value, exceeds the lower of the following:
(1) two percent of turnover, as per the last audited consolidated financial statements of the listed entity;
(2) two percent of net worth, as per the last audited consolidated financial statements of the listed entity, except in case the arithmetic value of the net worth is negative;
(3) five percent of the average of absolute value of profit or loss after tax, as per the last three audited consolidated financial statements of the listed entity;”
10. In regulation 30(4)(i) ) i.e criteria for determination of materiality of events/ information, sub clause and the proviso is inserted as 30(4)(i)(d), namely-
“(d) In case where the criteria specified in sub-clauses (a), (b) and (c) is not applicable, an event or information may be treated as being material if in the opinion of the board of directors of the listed entity, the event or information is considered material:
Further, that any continuing event or information which becomes material pursuant to notification of these amendment regulations shall be disclosed by the listed entity within thirty days from the date of coming into effect of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements)(Second Amendment) Regulations, 2023.”
11. In regulation 30(4)(ii) i.e. the policy for determination of materiality and its disclosure on its website , the following provisos is inserted which states that a policy for determination of materiality shall not dilute any requirement specified under the provisions of these regulations:
Also, such a policy for determination of materiality shall assist the relevant employees of the listed entity in identifying any potential material event or information and reporting the same to the authorized Key Managerial Personnel.
12. In Regulation 30(6) is substituted by SEBI to specify shorter timeline for the disclosure of material events/ information.
As per Regulation 30(6) The listed entity shall first disclose to the stock exchange(s) all events or information which are material in terms of the provisions of this regulation as soon as reasonably possible and in any case not later than the following:
(i) thirty minutes from the closure of the meeting of the board of directors in which the decision pertaining to the event or information has been taken;
(ii) twelve hours from the occurrence of the event or information, in case the event or information is emanating from within the listed entity;
(iii) twenty four hours from the occurrence of the event or information, in case the event or information is not emanating from within the listed entity.
Further if disclosure is not timely made then the listed entity shall along with disclosure will provide the explanation for the delay.
13. As per Regulation 30(11), a listed entity may on its own initiative also, confirm or deny any reported event or information to stock exchange(s)
A new proviso has been inserted which states the top 100 listed entities (with effect from October 1, 2023) and thereafter the top 250 listed entities (with effect from April 1, 2024) shall confirm, deny or clarify any reported event or information in the mainstream media which is not general in nature and which indicates that rumours of an impending specific material event or information in terms of the provisions of this regulation are circulating amongst the investing public, as soon as reasonably possible and not later than twenty four hours from the reporting of the event or information:
Further, if the listed entity confirms the reported event or information, it shall also provide the current stage of such event or information.
14. SEBI has inserted Regulation 30(13) which states that in case an event or information is required to be disclosed by the listed entity in terms of the provisions of this regulation, pursuant to the receipt of a communication from any regulatory, statutory, enforcement or judicial authority, the listed entity shall disclose such communication, along with the event or information, unless disclosure of such communication is prohibited by such authority.”
15. SEBI has inserted a new Regulation 30A i.e. “Disclosure requirements for certain types of agreements binding listed entities which requires all the 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 specified in clause 5A of para A of part A of schedule III to these regulations, shall inform the listed entity about the agreement to which such a listed entity is not a party, within two working days of entering into such agreements or signing an agreement to enter into such agreements.
Further, the agreements that subsist as on the date of notification of clause 5A to para A of part A of schedule III, the parties to the agreements shall inform the listed entity, about the agreement to which such a listed entity is not a party and the listed entity shall in turn disclose all such subsisting agreements to the Stock Exchanges and on its website within the timelines as specified by the Board.
Also, the listed entity shall disclose the number of agreements that subsist as on the date of notification of clause 5A to para A of part A of schedule III, their salient features, including the link to the webpage where the complete details of such agreements are available, in the Annual Report for the financial year 2022-23 or for the financial year 2023-24.
What are the specified agreements?
A new clause 5A of para A of part A of Schedule III of the LODR Regulations has been notified. The Agreements specified for the applicability of Regulation 30A is:
Agreements entered into by the shareholders, promoters, promoter group entities, related parties, directors, key managerial personnel, employees of the listed entity or of its holding, subsidiary or associate company, among themselves or with the listed entity or with a third party, solely or jointly, whose purpose and effect is to, impact the management or control of the listed entity or impose any restriction or create any liability.
16. SEBI has inserted regulation 31A “Special rights to shareholders” which states that any special right granted to the shareholders of a listed entity shall be subject to the approval by the shareholders in a general meeting by way of a special resolution once in every five years starting from the date of grant of such special right.
Further, the special rights available to the shareholders of a listed entity as on the date of coming into force of this regulation shall be subject to the approval by shareholders by way of a special resolution within a period of five years from the date of coming into force of this regulation.
Also, the requirement specified in this regulation shall not be applicable to the special rights made available by a listed entity to a financial institution registered with or regulated by the Reserve Bank of India under a lending arrangement in the normal course of business or to a debenture trustee registered with the Board under a subscription agreement for the debentures issued by the listed entity, if such financial institution or the debenture trustee becomes a shareholder of the listed entity as a consequence of such lending arrangement or subscription agreement for the debentures.
17. SEBI has inserted regulation 33(3) clause (j) which states that the listed entity shall submit its financial result in accordance with the timeline specified in clause (a) or clause (d) of this sub-regulation(i.e. 45 days or 60 days), as the case may be, or within 21 days from the date of its listing, whichever is later.
18. Regulation 34(2)(f) regarding Business Responsibility and Sustainability Report is substituted with following clause which states for the top one thousand listed entities based on market capitalization, a Business Responsibility and Sustainability Report on the environmental, social and governance disclosures, in the format as may be specified by the Board from time to time:
Provided that the assurance of the Business Responsibility and Sustainability Report Core shall be obtained, with effect from and in the manner as may be specified by the Board from time to time:
Further that the listed entities shall also make disclosures and obtain assurance as per the Business Responsibility and Sustainability Report Core for their value chain, with effect from and in the manner as may be specified by the Board from time to time:
Also, the remaining listed entities, including the entities which have listed their specified securities on the SME Exchange, may voluntarily disclose the Business Responsibility and Sustainability Report or may voluntarily obtain the assurance of the Business Responsibility and Sustainability Report Core, for themselves or for their value chain, as the case may be.
19. SEBI has inserted regulation 37A. Sale, lease or disposal of an undertaking outside Scheme of Arrangement which states Listed entity carrying out sale, lease or otherwise disposal of the whole or substantially the whole of the undertaking of such entity or where it owns more than one undertaking, of the whole or substantially the whole of any of such undertakings, shall –
(a) Take prior approval of shareholders by way of special resolution;
(b) Disclose the object of and commercial rationale for carrying out such sale, lease or otherwise disposal of the whole or substantially the whole of the undertaking of the entity, and the use of proceeds arising therefrom, in the statement annexed to the notice to be sent to the shareholders:
The special resolution shall be acted upon only if the votes cast by the public shareholders in favour of the resolution exceed the votes cast by such public shareholders against the resolution.
Also, no public shareholder shall vote on the resolution if he is a party, directly or indirectly, to such sale, lease or otherwise disposal of the whole or substantially the whole of the undertaking of the listed entity.
20. In regulation 46(2) (o) SEBI has amended the norms which states that the listed entities shall be required to disclose in their website under the separate section the schedule of analysts or institutional investors meet at least 2 working days in advance (excluding the date of the intimation and the date of the meet) and presentations made by the listed entity to analysts or institutional investors.
21. SEBI has revised the regulation 57 and the revised norms states that the listed entity shall be required to submit a certificate to the stock exchange regarding status of payment of interest or dividend or repayment or redemption of principal of non-convertible securities, within 1 working day of it becoming due, in the manner and format as specified by the Board from time to time.
22. Amendments made to Schedule III:
- Sub-paragraph 1 in Part A has been substituted with “Acquisition(s) (including agreement to acquire), Scheme of Arrangement (amalgamation, merger, demerger or restructuring), sale or disposal of any unit(s), division(s), whole or substantially the whole of the undertaking(s) or subsidiary of the listed entity, sale of stake in associate company of the listed entity or any other restructuring.
- Sub-paragraph 2 now requires reporting of new ratings, irrespective of any change.
- Sub-paragraph 5A has been inserted i.e. “(5A) Agreements entered into by the shareholders, promoters, promoter group entities, related parties, directors, key managerial personnel, employees of the listed entity or of its holding, subsidiary or associate company, among themselves or with the listed entity or with a third party, solely or jointly, which, either directly or indirectly or potentially or whose purpose and effect is to, impact the management or control of the listed entity or impose any restriction or create any liability upon the listed entity, shall be disclosed to the Stock Exchanges, including disclosure of any rescission, amendment or alteration of such agreements thereto, whether or not the listed entity is a party to such agreements:
Provided that such agreements entered into by a listed entity in the normal course of business shall not be required to be disclosed unless they, either directly or indirectly or potentially or whose purpose and effect is to, impact the management or control of the listed entity or they are required to be disclosed in terms of any other provisions of these regulations.
- Sub-paragraph 6 has been substituted to include fraud or defaults by a listed entity, its promoter, director, KMP, senior management, or subsidiary, or arrest of KMP, senior management, promoter, or director of the listed entity.
- Sub-paragraph 7 now requires reporting of changes in senior management.
- Sub-paragraph C has been inserted, which requires disclosure of the letter of resignation along with detailed reasons for the resignation within 7 days in case of resignation of KMP, senior management, compliance officer, or director other than an independent director.
- Sub-paragraph 7D has been inserted, which requires disclosure of reasons for the MD or CEO’s unavailability or indisposition for more than 45 days in any rolling period of 90 days.
23. Amendments made to Schedule V:
- Particulars of senior management, including changes therein since the close of the previous FY, need to be reported in the Corporate Governance Report.
- Disclosure of certain types of agreements binding listed entities needs to be disclosed in the Annual Report.
Author Bio
